China stock exchanges raise margin rules as authorities rein in rising leverage

China's Stock Market Margin Rule Tightening

China's stock exchanges have reversed a 2023 easing measure by raising the minimum margin requirement to 100% for new stock purchases, as announced by the Shanghai, Shenzhen, and Beijing stock exchanges. This decision was approved by the China Securities Regulatory Commission (CSRC).

Regulatory Background and Significance

The exchanges framed this move as a 'counter-cyclical adjustment,' highlighting a surge in financing activity and persistently high market liquidity. It reflects growing official concerns about excessive leverage amid rising equity prices and improved risk appetite.

Impact and Market Reaction

Notably, this tightening only applies to new margin contracts; existing positions and their extensions remain under previous rules, limiting the risk of abrupt market dislocation. Investors entering new margin trades must fully fund stock purchases from their own capital.

Future Outlook

The near-term impact on the market is expected to be modest, but this action signals that Beijing is increasingly vigilant about financial stability risks, prepared to recalibrate support measures as market sentiment improves.