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Daniel Ren

Zhang Shidong

Jiaxing Li

The People’s Bank of China (PBOC) plans to set up a swap facility that would give non-bank financial institutions access to at least 500 billion yuan (US$71 billion) in funding to buy shares, in a surprise move aimed at stabilising the stock market.
However, some analysts called for more drastic action to shore up investor confidence following more than three years of market declines.
Pan Gongsheng, the governor of the PBOC, said on Tuesday that brokers, mutual funds and insurers would be able to tap into the programme initially by using the shares they already own as collateral. He said that an additional 500 billion yuan of liquidity could be directed to the mainland’s markets if the swap programme is successful.
“I have discussed with [China Securities Regulatory Commission] chairman Wu Qing that we could consider unleashing a second round of 500 billion yuan, or the third batch of 500 billion yuan if the plan were enforced well enough,” he said. “We are taking an open attitude towards the new policy.”
Pan said top financial policymakers are also looking at creating a stabilisation fund to buoy the stock market. Analysts believe this could mean additional funding support amounting to more than 1 trillion yuan.
The mainland’s A-share market has been battered by worries about a deflationary spiral and a bust in the nation’s property market. For the past three years, the CSI 300 Index has been among the world’s worst-performing benchmarks. It has slumped more than 7.6 per cent this year through Monday and appears headed for an unprecedented fourth year of declines.
Also on Tuesday, the PBOC unveiled stimulus measures to bail out the property sector. They included a half-point cut in the reserve requirement ratio – which determines the amount of cash that commercial banks must hold in reserve – as well as a half-point reduction in the mortgage rate for those who already own an existing property. Also, the central bank set up a 300 billion yuan special relending programme that allows listed companies and major shareholders to borrow from commercial banks for share repurchases and stake increases.

The measures sent the CSI 300 Index 4.3 per cent higher at the close on Tuesday. But the index is still 3.8 per cent shy of where it closed in 2023.
Over the past year, China’s securities regulator has undertaken a number of steps to drive the market higher, including a reduction in stamp duties, restrictions on short selling and state-directed buying of bank stocks and exchange-traded funds.
It also slowed the approval process for initial public offerings to prevent fresh equity from diluting existing holdings.
Some market observers, however, do not think Chinese authorities have done enough to prop up stocks.
“The policy package is not enough to reverse the downtrend in the stock market and the economy,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “China is now stuck in a liquidity trap and reliance on monetary policies cannot resolve the issue. The key issue to the property market is not the mortgage rate, but citizens’ falling incomes and weak income expectations.”
Hong Hao, chief economist at Grow Investment Group in Hong Kong, said a technical rebound is in sight – spurred by the stimulus package – since any positive news could spark a stock-buying spree. The Shanghai Composite Index, another key A-share gauge, hit a four-year low earlier this month.
This month, the index has erased almost all the gains from earlier in the year that were spurred by Beijing’s market rescue package.
Ivan Li, a fund manager at Loyal Wealth Management in Shanghai, said Tuesday’s measures fell short of market expectations as traders and analysts had expected Beijing to grant tax incentives and slash down payments for homebuying to zero.
“A [stock market] rebound is likely to be followed by a correction as some investors choose to lock up their gains by selling shares,” he said.
“These easing measures are positive surprises to markets and will be supportive of sentiment in the short term,” said Peiqian Liu, Asia economist at Fidelity International. “We expect China to continue with further easing, especially after many central banks in developed markets have started their own easing cycles, which gives the PBOC more room to do the same while still maintaining exchange-rate stability in the medium term.”


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The PBOC plans to set up a swap facility that would give financial institutions access to at least US$71 billion in funding to buy shares


The PBOC plans to set up a swap facility that would give financial institutions access to at least US$71 billion in funding to buy shares.


PBOC to set up US$71 billion swap facility to prop up stock market

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The PBOC plans to set up a swap facility that would give financial institutions access to at least US$71 billion in funding to buy shares

The PBOC plans to set up a swap facility that would give financial institutions access to at least US$71 billion in funding to buy shares