Chinese stock market tumble, loses £1.5 billion in 3 weeks

<p>The slide sparked rumours of market manipulation.</p>

China’s stock indexes have been tumbling since the start of the week, with investors panicking over what is described by analysts as an unprecedented situation.

The market bubble that has developed over the past months seems to have burst, with the Shanghai Composite Index tumbling almost seven per cent today, but closing 3.25 per cent lower to 3,785.57. In the three weeks since it reached a seven-year high, the bourse has lost 30 per cent of its value, or £1.5 trillion. This represents ten times the size of Greece's annual GDP.

Monetary authorities in Beijing have introduced several measures in an attempt to remedy the situation, including the fourth interest rates cut since November and a relaxation of margin lending rules. The People's Bank of China (PBOC) has also rolled over 250 billion yuan (£25.7 billion) of medium-term loans to banks late on Friday to ensure adequate liquidity in the system, but the situation has worsened over the past week.

Market manipulation

The fall has been so steep and sudden that State authorities said they are blaming the economic instability on calculated “foreign forces", according to the Washington Post. 

China's financial regulator has said it will investigate suspected market manipulation, and be looking into whether parties were mis-selling financial products.

The China Securities Regulatory Commission (CSRC) said it would base its investigation on reports of abnormal market movements from the stock market and futures exchanges, with some overseas investors of driving prices down by short-selling stocks on Chinese bourses.

However, analysts quoted by the BBC say the slump was triggered by concerns over inflated valuations and is a correction in the market, which had risen by 150 per cent in the last year.

"The government must rescue the market, not with empty words, but with real silver and gold," Fu Xuejun, strategist at Huarong Securities Co, told Reuters. He added that a market crash would hurt banks, consumption, companies and even trigger social instability.

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