CHINA’S stocks fell sharply yesterday, hit by a run of bad news over the weekend, including a fresh tightening of margin financing and signs of stepped-up initial public offering (IPO) issuance.

    The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 2.14 percent to 5,221.17, while the Shanghai Composite Index lost 2 percent to 5,062.99 points. The Shenzhen Composite Index closed down 2.15 percent at 3,073.07.

    China’s securities regulator published draft rules late Friday that would for the first time limit the size of the country’s rapidly-expanding margin trading and short selling by law, capping the trades at four times a brokerage’s net capital.

    The China Securities Regulatory Commission (CSRC) also demanded that brokerages make sure they do not allow lending to clients through illicit channels.

    The tightening adds stress to a market already facing liquidity pressure from a prospective wave of 25 initial public offerings this week, which some participants expect could lock up 5.7 trillion yuan (US$918 billion) in capital.

    Adding to investor concerns, Bank of Jiangsu said at the weekend it plans to launch an IPO in Shanghai, which analysts expect could raise more than 40 billion yuan — even more than this week’s 30-billion-yuan IPO by Guotai Junan Securities Co.

    Reflecting investor unease, US$5.1 billion was pulled out of a single China A-share ETF in the week to June 10, accounting for more than half the outflows from emerging market equity funds during the period, according to EPFR data.

    IT stocks lead declines yesterday, with the tech-heavy growth board ChiNext down 5.22 percent.

    But steelmakers were firm amid market talk that China will soon unveil an industry restructuring plan that will reduce capacity through consolidations. (SD-Agencies)