China Considers Launching $278 Billion Package to Rescue Stock Market

According to informed sources, Chinese authorities are considering a package of measures to stabilize the declining stock market.

Previous attempts to restore investor confidence have failed, prompting the call from Premier Li Keqiang for “strong steps” to be taken.

The Chinese stock market witnessed a difficult year in 2023, with the pace of decline accelerating in the early weeks of the new year.

Beijing dashed hopes that it could do more to support the struggling economy.

It is the worst start to a year for Chinese stocks since 2016, when investors were getting rid of their assets after the market collapse in 2015.

The Hang Seng index in Hong Kong dropped by 2.3 percent on Monday, closing at its lowest level since October 2022. The index has lost over 12 percent so far this month, which is nearly what it lost throughout the entirety of 2023.

The authorities are planning to raise around two trillion yuan (278 billion dollars), mostly from the external accounts of state-owned Chinese companies, as part of a stability fund to buy domestic stocks through a link with the Hong Kong Stock Exchange.

They have also allocated at least 300 billion yuan of domestic funds to invest in local stocks through the China Securities Company and the Central Huijin Investment Limited.

As officials consider other options, they may announce some of them in the nearest time this week, if they are approved by the higher leadership, according to sources. The plans are still susceptible to change.

The discussions emphasize the growing sense of urgency among Chinese authorities to halt the sales operations that have pushed the “CSI 300” benchmark to its lowest level in 5 years this week. There is also a focus on soothing retail investors in the country, many of whom have been affected by the prolonged real estate contraction, as a key to maintaining social stability.

The Chinese stocks listed in Hong Kong jumped by up to 3.8 percent, marking the biggest increase since November 15th, after hitting their lowest levels in 19 years on Monday. The local benchmark index, CSI 300, also made a slight recovery after a previous 1 percent drop. Both the domestic and foreign yuan reversed their previous losses, while 10-year government bond yields rose by one basis point to reach 2.5 percent.

It remains uncertain whether these measures are sufficient to end the sharp decline in the Chinese markets or not. The country is suffering from a real estate crisis, low consumer morale, declining foreign investment, and diminishing confidence in local companies after years of volatile policy formulation. All of these factors exert strong downward pressures on both the economy and financial markets.

The previous government’s efforts to support the stock market were not effectively sufficient and sometimes had opposite results, especially in 2015. Additionally, the authorities hesitate to implement a large economic stimulus package, as many stock investors are calling for it.

In a meeting of the State Council on Monday, chaired by Li Keqiang, the Chinese cabinet received a briefing on capital market operations, as well as considerations of related businesses, according to an official statement that did not provide further details on Beijing’s thoughts.

The manager of the fund at “JH Investment Management”, Lee Wei Ching, stated, “This is a significant boost in confidence.” He added, “The comments from the State Council also reflect that policymakers attach great importance to this issue, but it is difficult to determine now whether the gains can continue after the purchases or if people will sell at the high.”

Overall, more than 6 trillion dollars of market value of Chinese and Hong Kong stocks have been wiped out since reaching its peak in 2021, highlighting the challenge Beijing faces in trying to halt investor confidence decline.

(reuters)