China's CFSC to increase holdings to stabilize the situation

The recent China market crash might affect the economy through various channels. 

It may damage the government's credibility and further weigh on both investor and consumer confidence. Nevertheless, the Chinese Securities Financial Corporation (CSFC), the state-owned margin lender, was quick to reiterate that it has hasn't "exited" the market and will increase holdings at "appropriate" times to stabilize the stock market. 

It may force the government to step up stimulatory measures which may only contribute to imbalances in the system e.g. increase in credit lending to support unproductive projects. 

Spill-over effects on the corporate sector. Corporates were also involved in margin activity in the equity run up. Pledging shares as collateral for new loans (to buy these shares) creates risks. If prices drop too much corporates need to sell the shares or provide more own capital. 

"Furthermore, those corporates who used copper or other base metals as collateral for loans could be impacted by falling commodity prices. As such, the risk is for second round effects and contagion. The recent crash is not just about stock markets, it´s about the whole economy.  Increased efforts to investigate and crackdown on short-sellers. This could undermine market confidence even further", says Commerzbank.