China is weighing the creation of a dedicated stabilization fund aimed at cooling the sharp declines in its stock markets. The proposed fund would be substantial, with a potential size around 2 trillion yuan, equivalent to about 278 billion US dollars, according to industry sources cited by Bloomberg. The capital would likely be mobilized from offshore accounts held by large state-owned enterprises, and the plan calls for directing these resources to the purchase of shares on the Hong Kong Stock Exchange. Separately, domestic authorities have already earmarked 300 billion yuan, roughly 42 billion dollars, for equity investments from inside the country.
The objective behind these measures is to arrest the ongoing slide that has driven major indices to their lowest levels in five years. Since the start of 2021, the aggregate market capitalisation of Chinese companies has contracted by around 6 trillion dollars, underscoring the scale of the downturn and the urgency of a credible policy response.
Beyond fund-raising moves, Beijing has sought to reassure domestic investors about the resilience of the market. Yet officials have not publicly detailed the specifics of the confidence-building actions being deployed, leaving room for interpretation as market participants weigh risk and potential outcomes.
In parallel, Moody’s recently downgraded the outlook for Chinese government bonds to negative, a signal that rating agencies perceive heightened credit risk amid the property sector downturn and a broader slowdown in foreign investment inflows. Analysts note that the country may be entering a period of stagnation, driven in part by weakness in construction and reduced external capital appetite.
There were signs of a shift in investor sentiment for 2023 when data indicated a decline in the growth of foreign direct investment into China, with the latest figures showing a reduced pace year over year. The adjustment echoes broader concerns about global capital flows and China’s evolving role in international markets. In related developments, investments in U.S. dollar-denominated bonds linked to Russian issuers have also faced pressures, reflecting a wider environment of volatility across emerging markets.
Market observers warn that while stabilization steps may provide temporary relief, sustainable recovery will hinge on a combination of structural reforms, continued access to foreign capital, and ongoing confidence-building measures that address both corporate profitability and regional economic health. In the meantime, the government’s toolbox appears to be expanding, with a mix of fiscal support, market interventions, and communications strategies designed to steady nerves and preserve financial stability for investors in China and beyond, including readers in Canada and the United States. [Bloomberg] [ Moody’s, market commentary ]