Chinese police joined the securities regulator to probe clues related to “malicious short selling” amid recent chaos in the stock market, state-run Xinhua news agency reported. It will work with China Securities Finance Corp Ltd, the State-owned margin lender, to obtain liquidity through loans and bonds.

Meanwhile, Chinese Premier Li Keqiang said on Monday that China had the confidence and ability to deal with the risks and challenges faced by its economy, according to a statement on the central government’s website.

After a precipitous fall for weeks, the benchmark Shanghai Composite Index jumped 5.76 per cent today, the biggest daily rise in six years, to finish at 3,709.33 points.

The banking regulator, China Banking Regulatory Commission, today announced it will allow banks to extend mortgage loans that use share funds as collateral. Banks will now be able to discuss redefining mortgage terms of share-secured loans that are due or adjusting collateral with their clients.

Before this, the stock market, however, maintained a slumping trajectory.

On Wednesday, the CSF vowed to purchase more shares of small- and medium-sized listed companies to ease stock market liquidity and offer brokers credit to support stock market.

For the first time, the People’s Bank of China declared it would step up liquidity support for brokerages, so they in turn, could prop up shares.

“To restore the market back to normal, the China Securities Finance will continue to stabilize the share price of blue chips while it will increase the buying of small and medium sized stocks in a bid to solve the nervous market situation”.

The China Insurance Regulatory Commission said insurers will be permitted to boost their stockholdings.

The State-owned Assets Supervision and Administration Commission, the State assets regulator, has urged the 112 central State-owned enterprises to buy more shares in their companies.

“The huge volatility in the equity market has become an increasing concern for policy makers”, said Zhao Yang, chief China economist at Nomura Holdings Hong Kong.