The authorities of China They launched a battery of actions to counteract the marked falls that have affected the main Chinese markets since the beginning of the year. In this sense, state funds were made up of shares, and regulators announced precautionary measures to avoid collapses similar to those experienced in 2015.
Chinese leaders face increasing pressure to act with speed and determination with the purpose of putting an end to stock market crash, which represents a threat to the financial and social stability of that country. This challenge arises at a time when the world’s second largest economy is immersed in an intensification of real estate problems and persistent deflationary pressures.
Authorities are keen to prevent market weakness from further hampering consumption, which is already at low levels, especially during China’s Lunar New Year holiday week.
From its high points in 2021, Chinese markets have experienced a loss of around $7 trillion in value. This decline is attributed to the economic slowdown, a post-pandemic recovery below expectations, lack of confidence in both companies and consumersthe threat of deflation, geopolitical tensions and the persistent crisis in the real estate market, which does not seem to find a point of stabilization.
According to estimates provided by Goldman Sachs, The central bank, state companies and the sovereign fund made purchases of about $9.8 billion in local stocks last month. These actions seek to counteract the adversities of the Chinese financial market.
One by one, the measures of the Chinese plan for its markets
- State intervention in share purchases: The Chinese authorities chose to intervene directly in the markets, using state funds to acquire shares with the aim of stopping the sharp falls that have affected the main Chinese markets since the beginning of the year.
- Regulatory announcements to prevent collapses: Regulators announced measures aimed at preventing collapses similar to those experienced in 2015. This action seeks to control the situation and maintain financial and social stability in a context of economic challenges, deflationary pressures and real estate problems.
- Pressure for a quick and determined response: The Chinese leadership faces increasing pressure to act more quickly and decisively in the face of the stock market crash, which threatens to affect financial and social stability, especially considering the current economic situation and deflationary pressures.
- Purchases of shares by state institutions: According to estimates by Goldman Sachs, the central bank, state companies and the sovereign fund bought local shares worth $9.8 billion in the last month, seeking to stabilize the markets.
- Acquisition of bank shares by state institutions: State institutions also took shares in the country’s major banks in recent weeks, according to Bloomberg reports, as part of efforts to strengthen the financial sector.
- Tightening trade restrictions: China intensified trade restrictions imposed on domestic institutional investors and some offshore units. This movement seeks to control the fall in stock prices and maintain stability in the markets.
- Caps on cross-border total return swaps: caps were imposed on some brokers’ cross-border total return swaps with clients, limiting the ability of Chinese investors to short Hong Kong stocksin order to control the fall in prices.
- Cash injection into markets: Beijing injected nearly 1 trillion yuan into markets as the cut in banks’ reserve requirement ratio came into effect, keeping cash plentiful and avoiding signs of strain in money markets.
- Suspension of restricted stock loans: The stock market regulatory commission announced the suspension of restricted stock lending to prevent short selling and stabilize the market.
- Guidelines for limiting forced sales: Guidelines were established to limit forced sales due to ‘margin call’ situations, preventing investors from running out of funds to cover their positions and reducing the risk of automatic closures.
- Financial support for real estate developers: Given the crisis in the real estate market, it was declared that several housing projects by Chinese real estate developers, with liquidity problems, could qualify for financing within the framework of a support program for the sector in crisis. The objective is to promote real estate activity and facilitate loans to developers.
Together, these measures represent a comprehensive effort by the Chinese authorities to stabilize its stock market and avoid a crisis similar to that experienced in 2015, demonstrating a combination of state interventions, regulations and financial stimuli.
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