China considers $278 billion stock market rescue plan

Chinese authorities are reportedly considering a $278 billion plan to stabilize the nation's faltering stock market, Bloomberg News reveals. This initiative aims to bolster the market through significant purchases of shares using state-owned enterprise funds.

Publication: 23.01.2024 - 16:04
China considers $278 billion stock market rescue plan
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According to Bloomberg News, Chinese authorities are contemplating measures to stabilize the slumping stock market. The report, released on Tuesday and citing informed sources, suggests mobilizing about 2 trillion yuan ($278.53 billion), predominantly from offshore accounts of state-owned enterprises. The plan involves using a stabilization fund to purchase shares onshore via the Hong Kong exchange link.

The China Securities Regulatory Commission has not responded to Reuters' request for comment.

Following the Bloomberg report, Chinese stocks initially rose but later dipped, ending broadly flat. The blue-chip CSI300 Index hovered near a five-year low, while the Shanghai Composite Index stayed below the critical 2,800-point threshold. China's stock markets have struggled at the year's start, with uneven economic growth and a recent slump in home sales deterring foreign investors.

This development follows a statement from China's cabinet, chaired by Premier Li Qiang, which announced plans on Monday to increase mid- and long-term fund injections into the capital market to bolster stability and promote healthy growth.

Aninda Mitra, the head of Asia macro and investment strategy at BNY Mellon Investment Management, welcomed the proposed package but expressed concerns about its sufficiency, stating it represents less than 2% of China's GDP.

Global money managers, who have been offloading Chinese stocks amid a faltering post-pandemic recovery, indicated that significant stimulus or major property sector reforms are needed to shift their stance. The property sector, once a quarter of the economy, has particularly impacted investor confidence. Morgan Stanley reported last week that overseas funds have sold about $1.6 billion in Chinese equities this year, driven by European active funds and Hong Kong passive investments. Chinese investors, too, are steering clear of stocks.

Bloomberg's report also mentioned that Chinese officials have allocated at least 300 billion yuan of local funds to invest in onshore shares through entities like China Securities Finance and Central Huijin Investment. They are also exploring other options, which could be announced soon, pending approval from top leadership.

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