Xi Jinping is mulling emergency intervention to support the Chinese stock market after it fell to a five-year low.
Chinese Prime Minister Li Qiang, one of President Xi's closest allies, has asked authorities to come up with more “drastic” measures to stop falling stock prices and improve investor sentiment.
Mr. Li held a meeting with China's cabinet on Monday, where policymakers were briefed on capital markets and discussed the need to boost the investment value of listed companies, Bloomberg reported. They also discussed strengthening stock market stability.
China's CSI 300 index has lost a fifth of its value over the past nine months and on Monday hit its lowest level since early 2019.
Major stock index Hong Kong has also lost 44% of its value over the past five years and is down 8% this year.
The decline occurred despite Beijing's repeated interventions. Last year, China's $1.24 trillion sovereign wealth fund bought exchange-traded funds (ETFs) and bank shares in an attempt to stimulate the market. The People's Bank of China also injected a record 733 billion yuan (£81 billion) into the financial system.
Authorities are now considering a more radical option: a plan to unlock around £222 billion from offshore government accounts to buy shares. Plans may be confirmed in the coming days.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said: “I think they're probably going to encourage government insurers to invest more in the stock market.”
The Nasdaq Golden Dragon China Index, which tracks companies , a U.S.-listed stock that does most of its business in China, rose more than 4% on Tuesday in response to the news.
But questions are being raised about the long-term health of the Chinese stock market. will remain.
Investor confidence has been dented by the deep downturn in the country's property market, which began with property giant Evergrande's debt crisis in late 2021. Deflation and weak private sector demand have also hit stocks as China struggles to recover from the impact of the zero crisis. Covid policies that persisted much longer than in the rest of the world.
In a statement after Monday's meeting, the State Council said macro policies need to be improved to speed up the country's economic recovery since the pandemic.
Unlike the United States, where millions of ordinary people have invested their retirement savings in stocks, The average Chinese citizen has less of his wealth in the market. It is also a smaller source of funding than the banking system or bond market.
However, the Chinese stock market is a key barometer of confidence, and a fall in the market could spook foreign investors.
“This is indicative of investor confidence in China, and that translates into business confidence,” Mr. Wrigley said.
For the first time in history, overseas investors have taken more money out of China than they put in last year. According to Goldman Sachs, investors withdrew $11.8 billion from the country between July and September.
The deterioration of relations between China and the West, caused by Donald Trump's trade war between the US and China and exacerbated by tensions over Taiwan, has led to a deterioration in relations between China and the West. did not help. Beijing has also cracked down on the technology sector, heightening wariness among foreign investors.
“Historically, China's stock market has been a rollercoaster,” Mr. Wrigley said.
After global financial crisis, the Communist Party has turned to the stock market to boost growth, launching a campaign to encourage citizens to trade as part of the “China Dream”.
But the stock market has proven to be much more volatile than the underlying economy. In 2015, the Shanghai Composite Index lost 30% in three weeks.
Xi Jinping has recently tried to reduce the economy's dependence on investment in real estate and infrastructure. He has sought to boost investment in Chinese stocks as an alternative source of growth.
Policymakers are also turning to overseas businesses after last year's slump in investment.
HSBC and Standard Chartered last week received a top banking license from Chinese regulators, opening the door to the country's £13 trillion interbank bond market. The deal has been in the works for years.
Noel Quinn, chief executive of HSBC, and Mark Tucker, the bank's chairman, were in China this week.
Han Zheng, the country's vice president, told them: “We hope that HSBC can leverage its own strengths and deepen mutually beneficial cooperation with China, and contribute to strengthening and improving Hong Kong's status as an international financial center.”
< p >China needs help. The economy failed to bounce back after strict Covid policies were lifted at the end of 2022. The country is currently experiencing severe deflation, with prices falling for three months in a row.
Mr Wrigley said: “When China reopened, you didn't have the same strong recovery that you saw in the US or Europe, which was driven by consumer consumption and pent-up demand for services.”
Consumer spending was hampered by overwhelming economic growth and a sense of uncertainty about the future. Beijing stopped publishing youth unemployment data last summer after it hit a record high level.
“People are worried about jobs. Even working people don't feel as secure. There is a general lack of vitality,” Mr. Wrigley said.
Against this backdrop reviving the stock market may be the least of President Xi Jinping's worries.
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