China’s Power Move: “Short Selling Prohibited”! Leading Brokerage Temporarily Suspends Margin Trading for Retail Investors

Bloomberg reports that China’s largest brokerage firm, CITIC Securities, has temporarily suspended margin trading for individual investors and increased requirements for institutional clients in response to the sluggish stock market. Despite China’s National Bureau of Statistics announcing a 5.2% year-on-year growth in GDP for 2023, which may seem relatively high, it is actually the slowest growth rate in thirty years, excluding the three years affected by the pandemic. Economists have widely pointed out that China’s growth is slowing down due to high levels of debt, a crisis in the real estate market, and a shrinking labor force. The disappointing economic data has led to another round of selling in the Chinese stock market, with the Shanghai A-shares falling below 2800 points, reaching a 45-month low. Against this backdrop, Bloomberg today quoted insiders who revealed that CITIC Securities has suspended short selling for certain domestic clients due to further stock market declines. Although it is currently unclear how many brokerage firms are restricting short selling, this move indicates that authorities are eager to protect the market by adopting more aggressive measures after earlier measures, such as government purchases of bank stocks, failed to boost market sentiment. The report also suggests that trading activities of some major exchange-traded funds in China surged on Thursday, indicating that state institutions may be buying in. The government began making it harder to short sell more than two months ago. In fact, the Chinese government started cracking down on short selling behavior more than two months ago. According to the official media Xinhua, major market regulators have increased the margin requirements for securities lending, leading analysts to say that “shorting the Chinese stock market has become more difficult.” While investors in Taiwan, Japan, the United States, and other countries are celebrating a bull market, Chinese retail investors are becoming increasingly frustrated, and foreign investors have already exited the market. Whether restricting short selling is effective remains unknown. It is worth noting that during the previous bull and bear cycle in the stock market in 2015, China also imposed restrictions on short selling to drive out short-term traders, but the market continued to decline in the following months. The future rebound of the Chinese economy still needs time to be verified.