Chinese financial authorities are taking steps to support the capital markets in response to a sharp decline in the stock market. On November 2, they convened major financial institutions to discuss improvements to re-lending policies that support stock buybacks by listed companies. This initiative comes as the Chinese stock market experiences what has been described as its 'worst month' in nearly a decade.
According to the Shanghai Securities Journal, the People's Bank of China, the China Securities Regulatory Commission, and the National Financial Regulatory Administration gathered with major securities firms and fund management companies to explore ways to utilize capital market support policies.
On the same day, these three agencies also planned to meet with major banks to discuss enhancements to re-lending policies that support stock buybacks and additional purchases by listed companies.
The re-lending support for stock buybacks and additional purchases is one of the liquidity supply measures introduced by Chinese authorities in 2024 to invigorate the capital markets. This approach encourages financial institutions to provide loans to qualifying listed companies and major shareholders to facilitate stock buybacks and additional purchases.
According to China Business News, a large state-owned bank plans to increase loan limits by 100 billion yuan each for two central state asset management firms, China National Assets Management Company (CSAM) and China Chengtong Holdings Group (CCHGTG), totaling 200 billion yuan (approximately $40.4 billion) to support their stock buyback and purchase activities.
This move comes amid concerns over a prolonged consumer slump and declining profitability in AI companies, contributing to the ongoing weakness in the Chinese stock market.
Last month, the Chinese stock market recorded its worst performance in nearly a decade. The benchmark Shanghai-Shenzhen 300 Index (CSI300) fell by about 8%, marking its 12th consecutive week of decline. Bloomberg reported that as of October 22, the market capitalization of the Chinese stock market had decreased by $2.4 trillion (approximately 3.2 trillion yuan) compared to its peak in May.
Following the announcement of the discussions on stabilization measures, the Chinese stock market showed slight gains, with the CSI300 rising by more than 0.8% in morning trading.
However, analysts caution that even if stabilization measures are introduced, reversing the current market correction may prove difficult. Xiangshun Capital's Shen Meng told Bloomberg, "This meeting may have a positive short-term impact on the market, but such policy signals alone cannot change the fundamental economic trends. To improve the medium- to long-term outlook, structural reforms along with fiscal and industrial support policies are necessary."
As domestic demand weakens, downward pressure on the economy is increasing, and even exports, which have historically supported China's economic growth, are showing signs of slowing.
On October 31, the National Bureau of Statistics reported that the manufacturing Purchasing Managers' Index (PMI) for October fell to 49.3, down 0.8 points from the previous month. The manufacturing sector, which had entered an expansion phase in September, has now returned to a contraction phase. A PMI above 50 indicates expansion, while below 50 indicates contraction.
Detailed indicators show a decline in both domestic and export orders, indicating increased downward pressure on the overall manufacturing sector. The new orders index for manufacturing fell to 49.4, down 1.1 points from the previous month, while the new export orders index dropped from 50.0 to 48.7.
* This article has been translated by AI.
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