Chinese authorities are exploring introducing a set of measures to stabilize the declining stock market, as earlier attempts to restore investor confidence proved inadequate, prompting Premier Li Qiang to call for decisive actions.
In a bid to mobilize approximately 2 trillion yuan ($278 billion), mainly sourced from offshore accounts of Chinese state-owned enterprises, policymakers are considering the launch of a stabilization fund, Bloomberg News reported on Tuesday.
This fund would be utilized to purchase shares onshore through the Hong Kong exchange link. Moreover, they have designated at least 300 billion yuan from local funds for investment in onshore shares through entities like China Securities Finance Corp. or Central Huijin Investment Ltd.
The urgency behind these deliberations reflects the critical need to address the recent selloff, which pushed the benchmark CSI 300 Index to a five-year low. Recognizing the importance of calming retail investors, many affected by the prolonged property downturn, authorities view market stability as crucial for maintaining social harmony.
The proposed state-backed stabilization fund, initially considered in October, faces skepticism from some investors due to uncertainties surrounding its effectiveness, given the mixed outcomes of Beijing's previous rescue efforts.
The Chinese economy grapples with challenges such as the property crisis, waning consumer sentiment, declining foreign investment, and reduced confidence among local businesses due to years of unpredictable policymaking, putting pressure on both economic and market fronts.
Analysts at Morgan Stanley said the package "could help boost both market sentiment and liquidity, if confirmed to be true."
"The reported size is larger both absolutely and relative to market daily turnover, vs. the 2015 A-share rescue effort. We think coordinated macro stimulus actions are necessary for a sustainable recovery," analysts added.