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China Facing Weakness in Currency, Falling Stock Values

An investor looks at a screen showing stock information, after the new circuit breaker mechanism suspended today's stocks trading, in Shanghai, China, Jan. 7, 2016. (REUTERS/China Daily)
China Facing Weakness in Currency, Falling Stock Values
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China stopped trading on its stock market Thursday for the second time this week.

Stock shares fell seven percent in value before trading was halted. The China Securities Regulatory Commission used its “circuit-breaker” system to keep share prices from falling even further.

The value of country’s currency, the yuan, fell after the People’s Bank of China pushed down its guidance rate one half of one percent. It is now 6.56 yuan for one U.S. dollar, the lowest level in almost five years.

Observers say the situation in both the stock and money markets could worsen in the coming days.

On Thursday, the Chinese stock market fell five percent shortly after opening, and then another two percent in just one minute after the time-out.

Some investors are blaming the commission for developing the circuit-breaker rules. The measures force the stock exchange to halt trading for 15 minutes if share prices fall five percent. The exchange is forced to close for the day if prices drop seven percent or more.

Chinese officials enacted the rule to cool the market, but it ended up causing concern among investors, says Johnny Fang. He works for Z-Ben Advisors, a financial advisory service.

“The effect on the market is opposite of what was expected. Investors regard the circuit breaker as an accelerator for the bear market,” he added.

This also affected stock markets around the world. The leading measure of American stocks fell more than two percent Thursday. The Dow Jones Industrial Average closed down nearly 400 points.

Investors are worried about China’s economy and falling world oil prices.

Late Thursday, China’s regulators met to decide whether they should use the circuit breaker on Friday or not. They decided against using the system.

A spokesman for the regulatory commission said “the negative effect of the mechanism outweighed its positive effect.”

The Shanghai and Shenzhen exchanges will not use the circuit breaker on Friday.

I’m Dan Friedell.

Saibal Dasgupta wrote this story for Dan Friedell adapted it for Learning English. Additional information came from Agence France Press, The Guardian and Bloomberg. George Grow was the editor.

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Words in This Story

accelerator – n. a pedal in a vehicle that is pressed down to make the vehicle go faster

commission – n. a group of people who have been given the official job of finding information about something or controlling something

circuit-breaker– n. a switch that automatically stops the flow of electricity to a place or device if the current becomes too strong or another dangerous problem occurs

regulate – v. to set or adjust the amount, degree, or rate of (something)