Chinese shares took another tumble on Tuesday, defying government efforts to arrest a precipitous fall that has wiped an estimated $3.2 trillion off markets and threatens the world’s number-two economy.
The government over the weekend announced a halt to initial public offerings (IPOs) and moves to pour funds into the market to end three weeks of plunging prices.
Analysts say the heavy-handed intervention throws into question the pace of China’s economic reforms and the ability of the government to deflate what many describe as a stock market bubble.
By Tuesday afternoon, the benchmark Shanghai Composite Index had retreated 2.53%, or 95.63 points, to 3,680.28.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, slumped 5.57%, or 113.69 points, to 1,928.16.
The Shanghai market closed up 2.41% on Monday, in a short-lived rise after the policy package was announced at the weekend, lifted by gains in heavyweight blue-chips, which are the main beneficiaries of the government response even as most firms fell.
“The slumping Chinese stock market has raised concerns of systemic risks,” ANZ Banking Group said in a research note on Monday.
When the Communist Party launched a stock market — the ultimate capitalist tool — 25 years ago it kept strict control over key decisions, including which companies can list and who could invest.
Under the administration of President Xi Jinping, policymakers unleashed a liquidity surge and state media urged the market forward, seeking a boost for a slowing economy and populist cheer among investors for their growing fortunes.
Over 12 months Shanghai soared more than 150%.
But Communist planners are now facing the challenge of trying to prevent a market crash that could spark social unrest from disgruntled investors and infect the larger economy.
“China’s leadership has doubled down on its efforts to prop up equity prices because it believes that its own credibility is now coupled to continued gains on the markets,” Mark Williams, chief Asia economist for Capital Economics, said in a research report.
On Sunday, the government said the central bank would provide funds to the state-backed China Securities Finance Co. to help “protect the stability of the securities market”.