The bloodbath in Chinese equities extended into Friday, with the benchmark Shanghai Composite plunging as much as 7 percent amid reports that the securities market regulator has launched a probe into suspected market manipulation.
The China Securities Regulatory Commission (CSRC) had set up a team to look at "clues of illegal manipulation across markets," spokesman Zhang Xiaojun said in comments on the CSRC's official Weibo microblog late on Thursday.
"Cases that meet legal standards will be immediately investigated, seriously cracked down upon according to law, and those suspected of a crime will be resolutely transferred to the police for investigation," he said. Meanwhile, the China Financial Futures Exchange has suspended 19 accounts in the past month for short-selling, sources told Reuters.
The market is now down about 28 percent from its June 12 peak, firmly in bear market territory, despite intensifying efforts by authorities to shore up investor confidence. The market closed down 5.8 percent lower on Friday.
Over the weekend, the People's Bank of China unveiled a bigger-than-expected monetary easing package, cutting both interest rates and the reserve requirement ratio (RRR) for banks. A few days later, the CSRC eased regulations on using borrowed money to speculate on stock markets, canceling a rule that required investors to make additional guarantees if their margin ratio reached 130 percent or else face forced liquidation of their shares.
Regulators also revealed plans to allow pension funds managed by local governments to invest in the stock market for the first time.
"The correction that we're seeing in stocks is fascinating and the fact that the authorities are clearly nervous should make markets nervous," said Bill Blain, a strategist at Mint Partners in London.