China Securities Regulatory Commission (CSRC) in Beijing Photo:VCG

The Chinese top securities regulator has suspended securities relending starting from Thursday, as part of measures to strengthen counter-cyclical adjustments and maintain stock market stability.

Following the stimulus policy, major stocks in China closed higher at the end of trading, with the benchmark Shanghai Composite Index climbing 1.06 percent to 2,970.39 points. The Shenzhen Component Index rose 1.99 percent to 8,870.36 points, while the ChiNext Index jumped 2.06 percent to 1,685.12 points.

The China Securities Regulatory Commission (CSRC) said on Wednesday that it had approved an application submitted by the China Securities Finance Corp Ltd (CSF) to suspend securities relending, with the suspension taking effect on Thursday.

Existing securities relending contracts can be extended, but they should be settled prior to September 30, the CSRC said in a statement.

Securities relending refers to when the CSF lends its own securities or those raised in accordance with the law to securities companies for them to engage in secondary lending.

The CSRC said it has also approved arrangements to raise margin requirements for short-selling activities from a minimum of 80 percent to 100 percent, while the margin requirements for private equity funds will be raised from a minimum of 100 percent to 120 percent. The regulator said that the new policy will enter force on July 22.

A series of moves taken by the CSRC will help lift investor confidence and maintain the stability of the market amid recent downward pressure, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Thursday.

In addition to these policies, Yang called for more long-term capitals to enter the A-share market so as to reverse the downward trend of the stock market. 

"The stock market is not only a barometer of the macro-economy but could also in turn affects the economy," he said, noting that a sound stock market could contribute more to the development of sci-tech firms and create fortune for investors.

In wake of the CSRC's enhanced regulations in this regard which were first flagged in August 2023, short-selling in China has already declined drastically. The outstanding amount for short trades fell by 64 percent and 75 percent for securities lending, by the end of June this year, according to the government agency.

The latest moves made a necessary adjustment for stock supply and trade mechanism of domestic capital market, as well as responding to market voices, Dong Shaopeng, a senior research fellow from the Chongyang Institute for Financial Studies at the Renmin University of China, told the Global Times on Thursday.

"The moves ignited investor enthusiasm to some extent but the effect is still remains at an early stage. The market's pricing mechanism and financial fraud should be rectified and improved," he said, calling for an earnest implementation of the State Council Nine-Point Guideline.

In April, the State Council released a guideline on strengthening regulation, forestalling risks and promoting the high-quality development of the capital market. This is the third guideline document addressing capital markets issued by the State Council in two decades.

In a concerted effort to fortify the integrity of China's capital markets, authorities have rolled out a robust framework to curb financial fraud and enhance market discipline. For instance, the CSRC is advancing legal work to drastically raise the punishment cap for violations related to illegal information disclosure from 600,000 yuan ($82,565) to 10 million yuan for companies, and from 300,000 yuan to 5 million yuan for individuals.

Amid continued positive macro-economic figures and expectations for measures on further deepening reform and advancing Chinese modernization, international financial institutions are increasingly buoyant on the outlook for Chinese shares.

Yang called for confidence and patience in assessing China's stock market, stressing that the recovery of the Chinese economy is expected to pick up speed in the second half of the year which will drive a rebound in the stock market.