While the rest of the world is adding tougher regulations to curb the abuses of unregulated stock exchanges, China is going in the opposite direction. Allowing short sales on the market could help pump extra money into the system (though I would be concerned with the long term end result) is one change but the more dangerous move is allowing margin sales, as in requiring less cash to buy stocks. In a growing market, everyone is usually fine but in a declining market such as China's Shanghai exchange (which has lost 70% since last October) this could lead to an even more dramatic decline.
The introduction of short-selling in China would contrast with regulatory moves in much of the rest of the world. In response to the global crisis, U.S. and British regulators last month temporarily banned short-selling of financial stocks, while Australia, Singapore and Taiwan restricted the practice.
But the commission said, "The launch of margin trade and short-selling is an important step in the reform and development of our capital markets, and will inject new vitality into the securities market."
China has been considering since 2006 starting margin trade, in which investors borrow money from brokerages to buy shares, and short-selling, where they borrow stocks from brokers and sell them in the hope of buying them back later at lower prices.
Its launch of the reforms has been delayed by massive market volatility: a bull run that boosted the Shanghai Composite Index sixfold between mid-2005 and last October, and then a bear market which took the index down more than 70 percent.
Main & gay blog