Chinese police investigators have found evidence that certain firms may have deliberately engaged in illegal short-selling of stocks and stock indexes, State News Agency Xinhua reported.

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To some extent, this revelation may explain the recent poor performance of China's stock indices, which have fallen by about 30 percent since last month.  Experts estimate that the recent market plunge affected up to 90 million investors and led to losses amounting to about 186 trillion yuan ($3 trillion)

China Securities Regulatory Commission (CSRC) has since announced suspicions that the market plunge is due to illegal manipulations. Investigators have not revealed further information about the culprits as the investigation is still ongoing. Authorities have vowed to hand over the individuals and companies found to be involved in wrongdoing to the proper authorities.

China's stock indices seem to have recovered from the recent run of losses after they soared for two consecutive days. Between Thursday and Friday, the Shanghai Composite Index rose by up to 11.7 percent, according to Business Insider. On Friday, the Shenzhen Composite Index and ChiNext both rose by about four percent.

While the recent performance of the stock market has come as a relief to many investors, critics say the steps taken to stem the run of losses have negatively affected efforts to make the yuan an international currency. In an attempt to gain the yuan's entry into the International Monetary Fund's (IMF) Reserve Basket, Chinese authorities have been taking steps to free capital control. But experts say the recent market interventions may have ultimately reversed these efforts and derailed plans to secure the IMF's Special Drawing Rights for the yuan.

In a bid to reverse the negative trend, Chinese regulators banned large shareholders from selling their shares for the next six months and reduced the daily trading volume for CSI 500 Futures Index. State-owned corporations, who have been ordered not to sell their stocks, have also been instructed to purchase back as many as they can. Authorities have also relaxed regulations for insurance companies to invest in the stock market and offered incentives to brokerage companies to buy shares. Meanwhile, more than a thousand firms in the country have suspended trade in their stocks to avoid further losses in value. Numerous firms have also suspended their plans to make an initial public offering (IPO) in the market.

This is not the first case of stock manipulation that the CSRC has uncovered in recent times. About four years ago, an investment company - Guangdong Zhonghengxin - was found guilty of using illegal "pump-and-dumped" strategies to accumulate up to 426 million yuan ($67 million) on the market.

TagsShanghai Composite Index, Shenzhen Composite Index, ChiNext, China stock market, China Securities Regulatory Commission (CSRC), yuan, Guangdong Zhonghengxin, China Stock Manipulation