Chinese Stocks Decline After Margin Financing Ratio Raised to 100%

Global markets reacted with caution as Chinese equities led global losses following a regulatory shift in margin financing rules. The Shanghai Composite Index fell 2.8% to close at 3,214.46, while the Shenzhen Component Index dropped 3.5% to 9,742.11. The ChiNext Index experienced the steepest decline, shedding 4.1% amid heightened volatility in small-cap tech stocks. The People's Bank of China and the China Securities Regulatory Commission jointly announced the adjustment to the maximum margin financing ratio, effective immediately. Previously capped at 80%, the new limit of 100% allows brokers to lend up to the full value of a stock's market price, but only under stricter collateral requirements and risk controls. The change aims to curb excessive speculation and reduce systemic risk in the equity market. Data from the Shanghai Stock Exchange shows margin trading volume declined by 27% in the first three trading days of January 2026, reflecting investor caution. Outstanding margin debt totaled RMB 1.12 trillion as of January 13, down from a peak of RMB 1.48 trillion in late 2023. The reduction signals a cooling of speculative activity, though some analysts warn of potential liquidity strains in margin-heavy portfolios. The impact was felt across brokerages and asset managers. Huatai Securities reported a 19% drop in margin account openings in the week following the announcement, while CITIC Securities noted a 22% increase in margin call notices. Foreign institutional investors, including those managing funds with exposure to Chinese equities, adjusted positions, leading to outflows of $1.3 billion from onshore equity ETFs in the same period.