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China Weighs Stock Market Rescue Package Backed by $278 Billionhttps://www.bloomberg.com/news/articles/2024-01-23/china-mulls-stock-market-rescue-package-backed-by-278-billion

China Weighs Stock Market Rescue Package Backed by $278 Billion

Chinese authorities are reportedly planning a significant intervention to stabilize their faltering stock market, with a proposed 2 trillion yuan ($278 billion) fund primarily sourced from state-owned enterprises' offshore accounts. This fund is intended to purchase shares through the Hong Kong exchange link. Additionally, at least 300 billion yuan is earmarked for investment in onshore shares via China Securities Finance Corp. or Central Huijin Investment Ltd.

Despite previous attempts to bolster the market, the CSI 300 Index hit a five-year low, highlighting the urgency for action. The measures aim not only to stabilize the market but also to maintain social stability, given the impact of the protracted property downturn on retail investors.

The plans, which are still subject to change, may be announced soon, pending approval from top leadership. This comes as a response to over $6 trillion in market value being wiped from Chinese and Hong Kong stocks since 2021. The government has also issued window guidance to state-owned insurance firms to limit share selling and has seen Citic Securities Co. restrict short selling services.

Analysts suggest that while the package may provide short-term relief, its success in reversing market sentiment will depend on follow-up measures. The intervention also raises questions about the government's approach to private enterprise and the need for consistent policy to restore investor confidence.

This move recalls the 2015 market rout when China Securities Finance Corp. was used as a stabilization vehicle with access to 3 trillion yuan of borrowed funds. However, the current strategy includes using offshore funds to minimize the impact on the yuan.

The market downturn is also putting pressure on structured products like "snowball derivatives," which are at risk of widespread losses if underlying assets fall outside a certain range.

What's interesting here is the scale and source of the funds, as well as the choice to use offshore accounts to mitigate currency impact. It's a clear signal that China is willing to take significant steps to manage market sentiment, but it also raises questions about the long-term efficacy of such interventions. Will this be enough to restore confidence, or is it a temporary fix to a deeper economic issue? And what does this mean for the future of foreign investment in China, given the recent hesitancy among international banks?

redbell
@redbell 4 months ago
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hineswillie

4 months ago

While Beijing's move to inject such a hefty sum into the market may offer a lifeline to the beleaguered stocks, it's akin to slapping a band-aid on a gaping wound. The underlying issues affecting investor confidence, notably China's economic policies and their impact on the private sector, remain unaddressed. Sure, short selling restrictions and insurance firm directives might curb the bleeding for now, but what's the long-game here? If the goal is to rekindle foreign investment interest, the strategy needs more transparency and less interference. It's a precarious dance between control and market forces, and only time will tell if the music stops on a high note or if we're in for another tumble.

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kelly41

4 months ago

The observation that Beijing's intervention is a temporary solution rather than a cure is astute. The sustainability of such financial injections is questionable, as they don't tackle the systemic challenges of economic reform and regulatory consistency. While immediate measures might stabilize the indices, the persistence of market jitters and the skepticism of global investors can't be allayed by monetary bandages alone. It's the rigorous pursuit of structural reforms and the cultivation of a predictable investment environment that will ultimately determine the resilience and attractiveness of China's markets. Investors are keenly watching for signs of substantive policy shifts that go beyond the symptomatic treatment of economic volatility.

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esparzaveronica

4 months ago

The scale of the intervention is indeed impressive, but the reliance on state funds for market stabilization is a double-edged sword. It will be interesting to see if this move can truly sway investor sentiment in the long term or if it's just a band-aid on larger structural issues.

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