The hastily arranged call, which included attendees from several major international banks, was led by China Securities Regulatory Commission Vice Chairman Fang Xinghai, people familiar with the matter said, asking not to be named discussing private information. Some bankers left with the message that the education policies were targeted and not intended to hurt companies in other industries, the people said.

It’s the latest sign that Chinese authorities have become uncomfortable with a selloff that sent the nation’s key stock indexes to the brink of a bear market on Wednesday morning. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to prop up the market.

Eoin Treacy's view

The actions taken against the tutoring sector might be well intentioned but to say it is an isolated incident is a step too far. The war on the private sector has been waged for more than a year already. The message is clear. There is now a clear limit on how large companies can grow. We might argue about the merits of this move from a societal perspective, but it makes a nonsense of growth-based valuations. That’s something all investors have to come to terms with.

Convening China’s version of the USA’s Plunge Protection Team should succeed in arresting the broad market decline, at least for the moment.

Even as the tutoring furor gains headlines, it is a sideshow compared to what is going on in the background with regard to China Evergrande. The comparison is rather stark since the problem with the company is it has become too big to fail. A significant unwinding of its leverage and cross ownership of assets in everything from battery manufacturers to solar companies and its core property holdings will need to be handled delicately. The fact the company’s CEO is very politically connected means perceptions of favouritism will be difficult to avoid. 

The wider question is what can be done to rein in speculation in the property market. Here is a section from a related article.

The Chinese government needs to maintain a delicate balance. The real estate sector accounts for 13% of the economy from just 5% in 1995, according to Marc Rubinstein, a former hedge fund manager who now writes about finance.

Policy missteps could have unintended consequences for the banking system. Chinese banks had over 50 trillion yuan ($7.7 trillion) of outstanding loans to the real estate sector, more than any other industry and accounting for about 28% of the nation’s total lending.

Of those loans, about 35.7 trillion yuan were mortgage loans to households and 12.4 trillion yuan were for property development, according to official data.

The major impact for developers is likely to be tighter regulations on the use of revenues from properties that are sold before completion, Siu Fung Lung, a property analyst at CCB International Holdings Ltd., said in an interview. While such funds are intended for construction, they are sometimes pooled for working capital, he said.

Property is how most connected individuals have made their money during China’s economic evolution. Threatening that business model has never been successful and prices have continued to rise despite the best intentions of policy makers. The question for investors is whether the Central Government have concluded the size and leverage in the property market threaten the sustainability of single party rule. In a Communist system everything is about politics.