Chinese authorities are reportedly considering a rescue package to stabilize the country’s struggling stock markets. The plan involves mobilizing approximately 2 trillion yuan ($278 billion), primarily from offshore accounts of Chinese state-owned enterprises. The funds would be used to establish a stabilization fund, enabling the purchase of shares onshore through the Hong Kong exchange link. Additionally, around 300 billion yuan of local funds could be allocated to invest in onshore shares through entities like China Securities Finance Corp. or Central Huijin Investment Ltd. The move comes as the benchmark CSI 300 Index recently hit a five-year low, and policymakers are aiming to restore investor confidence and address market volatility.
The urgency to stabilize the stock market highlights concerns about the impact of the ongoing property crisis, declining consumer sentiment, reduced foreign investment, and waning confidence among local businesses. The proposed measures aim not only to prevent further declines in the short term but also to stabilize markets leading up to the Lunar New Year. However, the effectiveness of state-backed interventions in turning around market sentiment remains uncertain, as past rescue efforts have not always yielded the desired results.
Chinese officials are reportedly exploring various options, and some measures may be announced as early as this week if approved by top leadership. The plans are subject to change, and the China Securities Regulatory Commission has not provided official comments on the matter. The recent decline in the market has wiped out over $6 trillion in the market value of Chinese and Hong Kong stocks since their peak in 2021, posing a significant challenge for authorities seeking to restore investor confidence.
In addition to the proposed rescue package, regulators have reportedly given window guidance to state-owned insurance firms, urging them to refrain from selling more shares than they purchase. This move aims to prevent further selling pressure on the market. The challenges faced by Chinese markets have also led to calls for more consistent and forceful stimulus measures to address broader economic concerns and restore investor faith.
The situation underscores the complexities China faces, including a protracted property downturn, regulatory uncertainties, and challenges to private enterprises. President Xi Jinping’s increased control over private businesses, including a crackdown on tech giants, has further contributed to weakened investor confidence. The success of the proposed rescue package will depend on its ability to address underlying issues and provide a positive outlook for the economy, potentially dispelling concerns that the government lacks the necessary resolve.