Thursday, September 18, 2008

China to prop up stocks

China's government said Thursday it would take direct action to prop up the country's stock market.

The government said an arm of China's sovereign wealth fund would buy shares in the nation's three largest banks, while other government entities will be encouraged to buy stock in other listed companies. Authorities also canceled a tax on stock transactions.

Central Huijin Investment Co. will buy more shares in the nation's three largest banks, Industrial & Commercial Bank of China, China Construction Bank and Bank of China, according to the state-run Xinhua news agency. The report said the move is "to shore up their share prices amid stock market slumps." It didn't disclose specifics.

Huijin, a company established to spearhead restructuring of China's banking sector earlier in this decade, already owns the vast majority of stock in the banks, between 60% to 75% of the institutions. In some cases, only a small percentage of shares are listed on the stock markets, giving any purchaser outsize ability to boost the share price. ICBC is the second largest stock on the Shanghai Stock Exchange, while Bank of China is No. 4.

The aim appears to be an attempt to halt a stock market crash that has so far erased 69% from the benchmark Shanghai Composite Index in less than a year. Stock-market selling accelerated this week as traders marked down Chinese share values along with those on global markets, even though China's stock markets are largely closed to foreign investors.

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