Government Helps – China stocks pare losses in wobbly session

Chinese stocks managed to bounce off from steep losses and ended Wednesday almost flat as fresh supportive measures from brokerages eased investor fears that Beijing may be intensifying a crackdown on illegal margin financing.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.1 percent, to 3,365.83, while the Shanghai Composite Index lost 0.2 percent, to 3,160.17 points.

Both indexes tumbled over 4 percent in morning trading.

The market was previously weighed down by news that China’s securities regulators have urged brokerages to clean up “grey market” margin lending by the end of September, as Beijing pursues steps to back-stop the country’s tumbling stock markets.

The crackdown on margin financing since mid-June has already driven money out of the stock market, and the clean-up deadline would accelerate the money outflow, said Liu Jingde, an analysts at Cinda Securities in Beijing.

He said the fresh supportive measures were not sufficient to boost market sentiment and lure new investors.

On Wednesday, a number of Chinese brokerages, including Guotai Junan Securities Co , Changjiang Securities and Pacific Securities pledged additional funds to buy shares, answering fresh government calls to support the wobbly stock market.

Small-caps fell sharply on Wednesday, with Shenzhen’s growth board ChiNext slumping 2.8 percent.

But banking and infrastructure stocks shares pared early losses and ended the session higher, amid speculation that the government-backed investors intervened.