Why China stocks sink again?

China’s stocks slumped for a second day in thin turnover amid concern government measures to support the world’s second-largest equity market and economy are failing.

The Shanghai Composite Index dropped 3.5 percent to 3,005.17 at the close, led by commodity producers and technology companies. About 14 stocks declined for each one that rose on the gauge, while volumes were 36 percent below the 30-day average. The index completed its biggest two-day loss in three weeks with a decline of 6.1 percent.

Mainland Chinese equity funds lost 44 percent of their value at the end of last month compared with July, data showed Monday, as unprecedented state measures to stop a $5 trillion selloff failed to avert redemption. Data this month showed five interest-rate cuts since November and plans to boost state spending have yet to revive an economy weighed down by overcapacity and producer-price deflation. Yuan positions at the central bank and financial institutions fell by the most on record in August, a sign that policy makers stepped up intervention to support the currency.

“The economy has not shown signs of a pick up after a series of cuts in
interest rates and reserve requirements, while expectations about yuan
depreciation are still there,” said Zhang Haidong, chief strategist at
Jinkuang Investment Management in Shanghai. “Yuan-denominated assets face downward pressure. The market is still weak.”

Source: Bloomberg