Chinese markets are up after a report that Beijing is scrambling for billions of Yuan to be mobilized from state-owned companies to reverse the recent share decline.
The Hang Seng China Enterprises Index (which tracks Chinese stocks in Hong Kong) has dropped to its lowest level in almost two decades.
Bloomberg reported on Tuesday that the authorities are considering buying shares in China with around 2tn Yuan ($281bn, or £222bn), from offshore accounts held by state-owned firms. Plans could be approved this week.
Li Qiang on Monday, China’s premier and economic affairs minister, called for “forceful measures” to stabilize the market.
The stock market rescue package proposed by Chinese policymakers is believed to be the latest of a number of measures they are considering as their economy struggles to recover after lifted zero-Covid at the end 2022. The Chinese authorities are trying to prevent a prolonged selling-off of Chinese stocks as investors lose confidence in the second-largest economy of the world.
Since the peak of 2021, Chinese and Hong Kong shares have lost more than $6tn in value.
Beijing, however, has shown a reluctance to intervene in the same way it did during previous episodes of market turmoil. Li said to an audience of World Economic Forum attendees last week that authorities “do not seek short-term gains while accumulating risk over the long term”. Analysts believe that Xi Jinping is not interested in the stock market as a measure of the success of China’s long-term strategy.
Derek Irwin is an emerging markets portfolio manger at Allspring Asset Management. He said: “Until a larger crisis occurs, the Chinese Government may continue to throw cups of water onto the fire, instead of doing something bigger that they need to do.”
Xi said that China should focus on “high-quality growth” with increased investments in green and advanced technology, instead of the years of explosive economic activity which characterized China’s economy when he began his presidency in 2012.
“The story of China tells us that there are certain sectors which are going to be very difficult. You need to be selective about the companies you purchase, said Norman Villamin. He is the chief strategist of UBP in Switzerland.
Beijing will set a modest growth goal of 5% by 2024. This is supported by strong government spending. However, structural issues such as youth unemployment and geopolitical tensions between the US, along with weak consumer demand, may be difficult to overcome.
Official statistics show that China’s economy expanded by 5.2% between 2023 and 2024. However, some economists believe the actual growth rate was lower. Rhodium group analysts say that China’s struggling property sector and the high level of local government debt suggests that the actual growth in China was closer to 1.5%.
The current economic crisis has prompted a crackdown against comments that “bashing the economy”.
Internet users ignored the directive on Monday. Several blamed China’s political system. One user wrote on Weibo: “Others use real money to rescue their stock markets; we use loudspeakers.”