(Yicai Global) June 26 -- Four Chinese financial authorities have sought to curb market concerns over excessive share pledges by claiming that risks to the market are controllable.

Share pledges are used by entrepreneurs worldwide who need to front collateral for business loans. But as prices drop the debtors may be forced to sell off shares and lose control of their company, or stump up more assets as surety.

The total value of pledged shares makes up just 3 percent of the Shanghai bourse's total value and is gradually falling, the exchange said in an online post. The Shanghai Composite Index, a benchmark for the bourse, hit a two-year low earlier this month after Washington threatened to up the stakes in the looming trade war between the world's two largest economies and financial markets.

Investors went into furor after a number of listed companies announced that the declining share prices could push the stock below a forced liquidation value, meaning major shareholders would have to sell off their pledged shares. Reports even surfaced that regulators had ordered brokers not to force-sell stocks in order to stabilize the market.

State-backed news site The Paper cited several brokers as saying that the risks of pledging are not that high and they had not received such a demand from the regulator. Many shareholders that close in on the forced liquidation value extend their pledge contracts or source funds from other lenders to increase their collateral, the report added, saying forced share selling is quite rate.

The Securities Association of China, China Banking Association and the Shenzhen Stock Exchange have posted similar notices as they look to reassure investors that pledges are under control and prevent the markets from falling further.

The tailing stock markets have drooped in sync with the yuan, which has been depreciating heavily this month. The central bank pushed the parity rate against the dollar to 6.518 this morning, almost 2 percent weaker than 6.4003 on June 8 as speculation mounts that China is manipulating its currency to brace for a trade war. In China's spot market, the yuan can be traded at 2 percent above or below the central parity rate.

China's banking sector must now better allocate credit resources and evaluate risks at all companies, accommodating for only reasonable needs, said Pan Guangwei, vice chairman of the China Banking Association.

Editor: James Boynton