Lending Association

China considers $320 billion rescue package amid market slump

The sell-off in Chinese shares slowed on Tuesday, and Hong Kong bounced back after the government contemplated a well-leaked proposal for a massive share-buying scheme.

A day earlier, a sharp fall in mainland and Hong Kong shares had the government rushing to soothe fears. State-owned CCTV reported that Chinese Premier Li Qiang had called for “more powerful and effective measures to stabilize the market and confidence.”

Less than a day later, a strategic leak to Bloomberg claimed the government was considering a rescue package backed by offshore money to prevent a slump in its struggling stock markets. The report, citing sources familiar with the matter, stated that Chinese authorities aimed to acquire approximately 2 trillion yuan ($US 278 billion) primarily through offshore accounts of Chinese state-owned companies to stabilize the market by purchasing stocks onshore through Hong Kong markets.

According to Bloomberg, Chinese policymakers had also set aside another 300 billion yuan of local funds (around $US 41 billion) to invest in onshore shares through state-owned financial firms, China Securities Finance Corp. or Central Huijin Investment Ltd.

But is this enough? China had revealed a $US 140 billion infrastructure funding package late last year that had no impact. The country’s central bank injected more than $US 138 billion into the financial system last week, and two rate cuts by the central bank had no effect.

So, will a total of around $US 320 billion make a difference? The Chinese stock market, despite its depression, still holds a value close to $US 10 trillion. While that’s impressive, the market has declined by nearly $US 6.5 trillion since its 2021 peak.

The Shanghai market has fallen 6.4% so far in 2024, with a market value in December just over $US 6.6 trillion. It has actually lost more than $US 420 billion in value in the first 23 days of January, which is more than what the Bloomberg share-buying story suggests is available.

So, the $US 320 billion, at around 3% or a little more, is a blip, equivalent to the value of a few bad days’ losses and would be overshadowed by investors looking to exit. It doesn’t address the most apparent issues—the property slump, collapsing property prices since 2021, and widespread price deflation in various sectors of the economy.

Meanwhile, the Nikkei in Tokyo eased by a fraction (0.08%) on Tuesday after the country’s central bank left monetary policy unchanged for yet another month.