Chinese Stocks Fall Amid Manipulation Probe

Chinese stocks tumbled Thursday after the government widened a crackdown on stock manipulation by banning trading by state-owned and publicly listed companies and ordering a large-scale probe of their accounts.

Under new rules, state and listed companies won’t be allowed to buy shares unless they are held as long-term investments. Also, local authorities will be required to probe for dummy accounts.

The moves are the latest in a series of actions aimed at cooling China’s booming stock markets, which traders say have been pushed up in part through manipulation.

China’s benchmark stock indexes gained as much as 50% in the first four months of the year, although most have lost at least half that gain in recent weeks.

“The new moves are going to dry up liquidity in the market, and prices will continue to fall as companies with improper holdings dump shares,” said Lin Qing, an analyst at Shenyin & Wanguo Securities, China’s biggest brokerage.

The Shanghai Stock Exchange’s index of A-shares, which tracks stocks restricted to local investors, tumbled 7.2% to 1,313.64 Thursday. The exchange’s B-share index, which tracks shares that foreigners can buy, lost 3.8% to 84.82.

The Shenzhen Stock Exchange’s index of A-shares dropped 9.1%. The two exchanges impose 10% daily limits on price fluctuations.

Trading by state-owned and listed companies has accounted for at least 40% of daily trading on China’s exchanges in the last few months, so the impact of the new ban will be huge, traders said.

Analysts say Chinese firms have engaged in the same kind of short-term stock trading that businesses in Japan and Taiwan practiced during their 1980s’ stock booms.