China Eyes Stock Rescue Package / BoJ Stays Put

It has been reported that the Chinese authorities are considering a rescue package to help stave off the continued slump in its stock markets. The plan involves the mobilisation of approximately CNY 2tn (around USD 278bn) primarily from overseas accounts of Chinese state-owned companies. This funding would be used to purchase shares domestically via the Hong Kong exchange connection. Additionally, at least CNY 300bn from domestic sources is set to be invested in local shares through entities like Central Huijin Investment Ltd. and China Securities Finance Corp.  

The proposal highlights the urgent action Chinese officials are taking to halt a market downturn that recently pushed the CSI 300 Index to its lowest level in five years. Ensuring the confidence of the country's retail investors, who have been impacted by a prolonged slump in the property market, is crucial for the authorities.  

The idea of a state-supported stabilisation fund is not new, with the concept first broached a few months ago. However, while its effectiveness has been questioned, previous government-led rescue attempts have had mixed results. The current economic challenges in China, including a property crisis, weak consumer sentiment and declining foreign investment, have put pressure on authorities to act. China’s CSI 300 index slid nearly 11.5% last year, its third straight yearly fall. Hong Kong’s Hang Seng index fell nearly 14% in 2023, in doing so making it the worst performing major Asian stock market. The start of this year has been no better, with the CSI 300 down nearly 6% YTD and the Hang Seng even worse, down almost 10%.  

The news follows a statement made by Chinese Premier Li Qiang at a state council meeting, where he emphasised the need for more robust and efficient actions to secure market stability and investor confidence. “We must take more powerful and effective measures to stabilise the market and confidence,” Li said. He added: “It is necessary to enhance the consistency of macro policy orientations, strengthen innovation and coordination of policy tools, consolidate and enhance the positive economic recovery, and promote the stable and healthy development of the capital market.”   

We also heard that the Bank of Japan voted unanimously, as expected, to keep interest rates at -0.1%, with no change to yield curve control policy. In the statement released with the decision, the BoJ sees the chance of world’s third-largest economy maintaining its 2% inflation target “gradually heightening” whilst reiterating it “will not hesitate to take additional easing measures if necessary”. 

“We were able to confirm that the economy is moving in line with our projections on inflation”, Kazuo Ueda, the BoJ Governor said in the press conference. “Our core-core inflation forecast is at 1.9%, very close to our 2% target. This was the case in October, but it happened again this time, after close scrutiny”, he added.