Why Chinese Stock Markets Are Steadying Again

December 29, 2015, 12:38 PM UTC
Shanghai Composite Index Drops Nearly 4%
HANGZHOU, CHINA - NOVEMBER 27: (CHINA OUT) A investor observes stock market at an exchange hall on November 27, 2015 in Hangzhou, China. The Shanghai Composite Index has dropped nearly 4 percent before the close of stock trading Friday afternoon and it seemed that it would tumble below 3,500 points. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)
Photograph by ChinaFotoPress via Getty Images

China stocks steadied on Tuesday after falling more than 2% in the previous session, as the central bank vowed to maintain reasonable credit growth and keep the yuan stable.

But trading volume in Shanghai shrank to a three-month low, reflecting waning activity toward the year-end.

Both the blue-chip CSI300 index and the Shanghai Composite Index rose 0.9%, to 3,761.87 points and 3,563.91 points, respectively.

A rebound in Shanghai-traded, dollar-denominated B shares also helped to calm frazzled nerves after they tumbled nearly 8 percent on Monday.

In an apparent move to soothe investors, China’s foreign exchange regulator said on Tuesday that a new business supervision system to be launched next month won’t change the way Chinese individuals use currencies and has nothing to do with capital market fluctuations.

The new system was cited by some analysts as the reason behind the B share slump.

Investors also drew comfort from a People’s Bank of China statement saying it would “flexibly” use various policy tools to maintain appropriate liquidity.

Most sectors gained on Tuesday, with an index tracking banking stocks up 1%.

Shares of Hua Xia Bank rose 3.2% after Deutsche Bank agreed to sell its 20% stake in the Chinese lender to insurer PICC Property and Casualty Co , ending a major source of uncertainty.