China’s economy continues to decline, with the A-share market remaining lackluster. The Chinese Communist Party (CCP) has introduced several measures to address this issue, but they have had minimal impact. The CCP officials have stated that they will inject billions of yuan of long-term funds into the A-share market annually to help it overcome its current difficulties. However, this positive news has not managed to boost market confidence, with the stock market responding tepidly.
On January 23rd, during a press conference held by the State Council Information Office, the Chairman of the China Securities Regulatory Commission (CSRC), Wu Qing, announced plans to increase the actual investment ratio and the scale of mid-to-long-term funds invested in A-shares. Publicly offered funds holding A-share market capitalizations will see an annual growth of at least 10% over the next 3 years. For commercial insurance funds, efforts will be made to ensure that large state-owned insurance companies allocate 30% of their new premiums annually towards A-share investments starting from 2025.
Wu Qing stated, “This means injecting billions of yuan of long-term funds into A-shares annually.”
Xiao Yuan, the Deputy Director of the China Banking and Insurance Regulatory Commission, mentioned that in October 2023, the regulatory authority approved China Life and New China Life to launch pilot securities investment funds raised from insurance funds, with a scale of 50 billion yuan, to invest in the stock market for the long term.
Currently, other insurance companies are applying for reforms in long-term stock investments using insurance funds. The second batch of long-term stock investment reform pilot projects for insurance funds will have a scale of 100 billion yuan, with an initial approval of 50 billion yuan for stock market investments before the Chinese New Year.
Following the official announcement of measures to boost A-shares, the stock markets in Hong Kong and Shanghai initially rose in early trading but later retraced their gains. Over 2700 stocks in the overall market showed a trend of declining more than rising, indicating a lack of market confidence in the news.
At the close, the Shanghai Composite Index reported a 0.51% increase to 3230.16 points; the Shenzhen Component Index and the Growth Enterprise Market Board Index fell by 0.49% and 0.37% respectively; the Hang Seng Index in Hong Kong dropped by 0.4%.
Hong Hao, Chief Economist at BOCOM International, commented on a TV program, stating that there are too many problematic companies in the A-share market, with some engaged in fraudulent activities. For example, some real estate companies have been involved in falsifying information, which has deterred investors from entering the market.
He believes that many funds are long-term investors, but there aren’t many high-quality companies suitable for long-term investment.
According to an article by The Associated Press, Lei Meng, a strategist at UBS Securities focusing on Chinese stocks, commented that massive shareholder sell-offs and market volatility have dealt a heavy blow to the Chinese market. As a result, the willingness of long-term investors to participate in the stock market has weakened.
“As we’ve seen in the past, these efforts are akin to trying to start a fire with damp wood – often proven ineffective and short-lived,” as stated in a commentary by Stephen Innes from SPI Asset Management.