China's curbs on short selling won't cure its crisis

Outlook

China’s pulling its shorts down again. It would really rather they were consigned to the washing basket. By shorts I mean, of course, short sellers; those who borrow other people’s shares and sell into the market in the hopes of buying back at a lower price.

The latest moves by the country’s regulators are designed to make an already difficult and expensive process even more so and thus help to stem the alarming decline shown by the Shanghai stock exchange.

It’s not an unusual move at times of volatility. Britain’s regulators sought to curb the practice during the banking crisis, for example, and there is evidence to suggest that doing so can reduce volatility. In China’s case it may also help buttress the shaky confidence of an army of small investors.

Ultimately, however, such controls represent little more than sticking plasters. They can help with the symptoms of crises, but not the causes. Which is why the situation in China remains very, very worrying.