This year, share buybacks at mainland China’s largest exchanges reached a new record as Beijing pushed companies to return cash back to shareholders in an effort to revive the flagging stock markets.
According to Chinese financial data provider Wind, there have been Rmb235bn (about $33bn) worth of share buybacks so far this year, which is more than twice the amount in 2018. This total has also surpassed the previous record set in 2022 at Rmb133bn.
China has launched its largest round of economic stimulus measures since the Covid-19 epidemic. Beijing wants to boost investor confidence, highlighting the growing urgency of restoring confidence in an economic that has been hard hit by a property crisis and weak consumer demands. The government is increasing efforts to reach its 5-percent GDP growth goal for the year.
The benchmark CSI 300 has risen by more than 20% over the last month as Beijing tries to revive its equity market following years of poor performance.
Kinger Lau is a China equity strategist for Goldman Sachs. He argues that given the steep decline in Chinese share prices, buybacks make “economic sense” to companies with spare cash. He said that a buyback could boost the government’s finances when it holds large stakes in businesses.
Even before Chinese authorities announced Rmb300bn of central bank loans last week to fund share buybacks, the surge in buybacks had already begun.
Since the central bank announced the scheme on Friday, more than 20 Chinese companies have announced share-buyback plans that exceed Rmb10bn, including the state oil company Sinopec. This calculation is based on filings at the stock exchange.
Jason Bedford, former China banking analyst at UBS, and Bridgewater Asset Management, said Beijing sought to encourage buybacks in order to boost the stock market.
He said, “Clearly the government has been pushing for this all year.”
Kin Chan, chief investor at Argyle St Management in Hong Kong said that China is following “a Japanese strategy, which tells companies to do share purchasebacks”.
“This is great for a stock-market player, but will it solve the economic problems? “I have no idea,” said he.
Official data released on Friday showed that the GDP in China grew by 4.6 percent on an annual basis during the third quarter. The official target for GDP growth is 5 percent.
The rise of buybacks that boost stock prices through a reduction in the number of shares has coincided with a decline in new equity issues.
According to Dealogic, as of mid-September, China’s initial public offerings were down 86% year-on-year. The $5.5bn was the lowest amount raised in any comparable period except 2013, when regulators changed rules and prohibited new listings.
Dividend payments have increased as well, and companies are giving more money back to their shareholders.
Goldman Sachs estimates listed Chinese companies have returned to their shareholders more than Rmb2tn through dividends and buybacks each year over the last three years.
Tencent, JD.com and other Hong Kong listed companies are expected to drive the increase in payouts.
China’s Securities regulator announced “opinions” on policy, also known as “nine measures”, in April. These “opinions” were aimed at improving governance and market supervision. Analysts predicted that the new policy would result in higher returns for investors.
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