Chinese markets have lifted following a report suggesting that Beijing policymakers are scrambling to mobilise billions of yuan from state-owned enterprises to reverse a recent share rout.
The benchmark CSI 300 index, which replicates the top 300 stocks traded on the Shanghai and the Shenzhen bourses, had fallen to a five-year low, while the Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, had dropped to its lowest in nearly two decades.
However, Chinese indexes recovered slightly on Tuesday after Bloomberg reported that the authorities were considering mobilising around 2tn yuan ($281bn or £222bn) from the offshore accounts of state firms to buy shares onshore. The plans may be approved as soon as this week.
On Monday, the Chinese premier, Li Qiang, who handles economic affairs, had called for “forceful and effective measures” on Monday to stabilise the market.
The proposed stock market rescue package is the latest in a series of measures that Chinese policymakers are thought to be considering, as the economy struggles to rebound after they began lifting zero-Covid measures at the end of 2022. Authorities are trying to avert a prolonged sell-off of Chinese equities as investors show signs of losing confidence in the world’s second-biggest economy.
More than $6tn has been wiped off the value of Chinese and Hong Kong stocks since a peak in 2021.
However, Beijing has proven reluctant to intervene as substantially as it has done in previous episodes of market turbulence. Li told an audience at the World Economic Forum last week that the authorities did “not seek short-term growth while accumulating long-term risk”. Some analysts believe that Xi Jinping, China’s leader, does not view the stock markets as a reflection of the success of his long-term economic strategy.
Derek Irwin, an emerging markets portfolio manager at Allspring, an asset management firm, said: “Until there is a bigger crisis, the Chinese government may just continue to kind of throw cups of water on the fire instead of something big that they probably need to do.”
Xi has said that China needs to focus on “high quality growth”, with increased investment in green and advanced technologies, rather than the years of rocketing economic activity that characterised China’s economy at the start of his tenure in 2012.
“Now, the story of China is there are some sectors that are going to have a very hard time. So you need to be more selective in terms of the companies that you buy,” said Norman Villamin, the chief strategist at the Swiss bank UBP.
Beijing is expected to set a relatively modest growth target of 5% for 2024, supported by strong central government spending, but structural problems such as high levels of youth unemployment, geopolitical tensions with the US and weak consumer demand may prove hard to surmount.
China’s economy grew by 5.2% in 2023, according to official statistics, but some economists estimate that the true figure was much lower. Analysts at Rhodium Group say that China’s embattled property sector and high levels of local government debt suggest that actual growth in 2023 was closer to 1.5%.
The ongoing economic woes have prompted a crackdown on comments that “badmouth the economy”.
Internet users ignored this directive on Monday, with several blaming China’s political system for the crash. “Other people use real money to save their stock markets, we use loudspeakers,” wrote one on Weibo.
Additional research by Tau Yang