China is reportedly considering a significant financial intervention to support its faltering stock markets. According to a recent Bloomberg News report, Chinese authorities plan to secure approximately 2 trillion yuan ($278 billion) primarily through offshore entities. These funds are intended to help stabilize the markets by investing in onshore shares, particularly through the Hong Kong markets.
The report, citing sources with knowledge of the situation, indicates that the money would mainly come from offshore accounts of Chinese state-owned enterprises. This move is part of a broader strategy to reverse the declining trend in Chinese stock markets.
In addition to the offshore funds, Chinese policymakers have earmarked 300 billion yuan of domestic funds for investment in onshore shares. These investments are expected to be managed by state-owned financial firms such as China Securities Finance Corp. or Central Huijin Investment Ltd.
This news arrives amid a challenging period for Chinese stocks. The Mainland China CSI 300 index witnessed a decline of 11.4% last year, marking its third consecutive year of losses. Furthermore, Hong Kong’s Hang Seng index experienced a near 14% drop in 2023, becoming the worst-performing major Asian stock market.
The potential market rescue plan aligns with recent statements by Chinese Premier Li Qiang. During a state council meeting, Li emphasized the need for “more powerful and effective measures to stabilize the market and confidence.” He advocated for consistent macro policy orientations and innovative policy tools to foster a positive economic recovery and ensure the stable and healthy development of the capital market.
No specific details regarding the amount of money to be mobilized or the timeline for the implementation of these measures were provided at the meeting.
Interestingly, China has previously highlighted its avoidance of massive stimulus measures in its economic strategy. Speaking at the World Economic Forum in Davos, Switzerland, last week, Li mentioned that China had not relied on large-scale stimulus to promote economic development. Instead, the focus has been on strengthening internal economic drivers, avoiding short-term growth that could lead to long-term risks. This approach coincides with China’s reported economic growth of approximately 5.2% in 2023.
