China Seeks to Calm Investors With Words and Cash After Rout

(Bloomberg) -- China is breaking out its mouthpieces -- and wallet -- as it seeks to soothe investors in the face of tighter financial market regulations.

The central bank-run Financial News urged stock investors not to overreact to tougher regulations in front-page commentary Wednesday. The monetary authority will prevent swings in liquidity from exceeding tolerable levels, the official Xinhua News Agency-owned China Securities Journal added in a separate front-page opinion piece. The People's Bank of China then injected more cash into the financial system through open-market operations Wednesday than on any day since January as the benchmark government bond yield climbed to the highest level in two years.

“Policy makers are trying to send a very clear signal -- they do not want a disorderly deleveraging process,” said Tommy Xie, an economist in Singapore at Oversea-Chinese Banking Corp. “But investors are still concerned about policy risks, so any news on tighter regulation can still trigger quick market volatility in the near term.”

Mainland China's benchmark Shanghai Composite Index retreated 2.1 percent in April amid spiking bond yields as regulators overseeing banking, insurance and securities trading issued a flurry of directives, targeting everything from excessive borrowing to speculation in equities. The efforts won the central government's public endorsement last week as top leaders including President Xi Jinping chaired a gathering to discuss “safeguarding national financial-market security” on April 25.

Citing a poem by Chairman Mao Zedong, the Financial News commentary urges investors to be more forward looking and to avoid creating short-term market fluctuations that could become obstacles as authorities tighten regulations. China Securities Journal, a newspaper the nation's stocks, banking and insurance regulators use to disclose information, argued in its piece that orderly deleveraging “fits everybody's interests,” and extreme volatility is unlikely.

Read more about how and why China's regulators are curbing financial risk

The China Securities Regulatory Commission said in a statement on its official Weibo microblog Wednesday that it's going to strictly supervise the stock market and make preventing financial risks more of a priority. The securities regulator will safeguard the nation's financial security by maintaining stability in the capital markets, according to the statement.

The PBOC injected a net 140 billion yuan ($20.3 billion) into the banking system with open-market operations on Wednesday in the largest single-day addition since January 19. The benchmark one-year government bond yield extended its increase from a two-year high, while the seven-day repurchase rate jumped amid concerns that the central bank may have refrained from rolling over previous cash injections maturing Wednesday. The Shanghai Composite Index retreated 0.3 percent by the close.

To contact Bloomberg News staff for this story: Tian Chen in Beijing at tchen259@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net, Ryan Lovdahl, Emma O'Brien

With assistance from Tian Chen, Yinan Zhao