China’s main share brokerages have agreed to spend 120 billion yuan ($19.3bn, £12bn) to prop up the ailing stock market. The main Shanghai Composite index has fallen 30% since the middle of June, nullifying most of this year’s gains. The authorities are worried about the possible economic effects and have already tried preventative measures. Twenty-one brokerages agreed the move at a meeting in Beijing on Saturday, Xinhua news agency said.
The brokerages “will jointly invest 15% of net assets as of the end of June, or no less than 120bn yuan, in blue chip exchange traded funds”, the Securities Association of China said in a statement. The brokerages have also committed themselves not to sell off holdings while the Shanghai Composite is below 4,500.
The statement also expressed “full confidence” in the development of China’s capital markets and urged all brokerages “to view the economic situation and capital market in a correct way and take similar actions to underpin the ailing market”.
The Chinese stock market bubble over the past year has been fuelled in part by investors borrowing heavily. Now that shares are on a downward path, policy makers are concerned the wider economy could be affected. The property market has been beset with problems and local authorities are burdened with high levels of debt. The authorities have sought to halt the share slide with an interest rate cut and by injecting more cash into the economy.
Last week, China’s securities regulator announced an investigation into possible manipulation of the stock market.