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Xi plots emergency intervention to shore up China’s crumbling stock market

xi jinping
xi jinping

Xi Jinping is weighing an emergency intervention to shore up China’s stock market after it slumped to a five-year low.

Chinese premier Li Qiang, one of President Xi’s closest allies, has asked authorities to draw up more “forceful” measures to halt sliding share prices and improve investor sentiment.

Mr Li chaired 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 the stock market’s stability.

China’s benchmark CSI 300 Index has lost a fifth of its value in the last nine months and hit its lowest level since the start of 2019 on Monday.

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Hong Kong’s main share index has also lost 44pc of its value over the past five years and is down 8pc so far this year.

The slump has come despite repeated interventions by Beijing. Last year, China’s $1.24 trillion sovereign wealth fund purchased exchange traded funds (ETFs) and bank shares in an effort to boost the market. The People’s Bank of China also injected a record 733bn yuan (£81bn) into the financial system.

Authorities are now considering a more radical option: a plan to unlock around £222bn from offshore state accounts to buy shares. The plans could be confirmed in the coming days.

Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said: “I think probably what they are going to do is guide state-owned insurers to invest more in the stock market.”

The Nasdaq Golden Dragon China index, which tracks US-listed companies who do most of their business in China, climbed by more than 4pc on Tuesday in response to the news.

However, questions about the long-term health of the Chinese stock market remain.

Investor confidence has been hammered by a deep property downturn in the country, which began with a debt crisis at property giant Evergrande at the end of 2021. Deflation and weak private sector demand have also hit stocks as China struggles to recover from the impact of zero Covid policies that were kept in place for far longer than the rest of the world.

In a statement after the meeting on Monday, the State Council said it needed to improve macro policy to boost the nation’s economic recovery since the pandemic.

Unlike the US, where millions of ordinary people have their retirement savings tied up in stocks, the average Chinese citizen has less of their 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 falling market can deter overseas investors.

“It is indicative of investor confidence in China and that filters into business confidence,” Mr Wrigley said.

For the first time on record, overseas investors took more money out of China than they put in last year. Investors pulled $11.8bn out of the country between July and September, according to Goldman Sachs.

Souring relations between China and the West, triggered by Donald Trump’s US-China trade war and heightened by tensions over Taiwan, have not helped. Beijing has also crackdown on the tech sector, in a move that has added to wariness among foreign investors.

“Historically, the stock market in China has been a rollercoaster,” said Mr Wrigley.

In the wake of the global financial crisis, the Communist Party turned to the stock market to boost growth, launching a campaign to encourage citizens to trade as part of the “Chinese dream”.

But the stock market has proven much more volatile than the underlying economy. In 2015, the Shanghai Composite Index lost 30pc over three weeks.

More recently, Xi Jinping has tried to reduce the economy’s dependence on property and infrastructure investments. He has been keen to boost investment in Chinese stocks as an alternative source of growth.

Policymakers are also courting overseas businesses after last year’s investment decline.

HSBC and Standard Chartered were granted a top-tier banking licence by Chinese regulators last week, opening the door to the country’s £13 trillion interbank bond market. The deal was years in the making.

Noel Quinn, HSBC’s chief executive, and Mark Tucker, the bank’s chairman, were in China this week.

Han Zheng, the country’s vice president, told them: “We hope HSBC can use its own advantage and deepen mutually beneficial cooperation with China and make contributions in solidifying and improving Hong Kong’s status as an international financial centre.”

China needs help. The economy has failed to bounce back after its strict Covid policies were lifted at the end of 2022. The country is now firmly in deflation, with prices falling for three months in a row.

Mr Wrigley said: “When China reopened you didn’t have the same strong rebound that you saw in the US or Europe, which was led by consumer consumption and pent up demand for services.”

Consumer spending has been hampered by an overwhelming sense of uncertainty about the future. Beijing stopped publishing youth unemployment data last summer after it hit a record high.

“People are worried about jobs. Even people in jobs don’t feel that 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’s worries.