China unveiled an ambitious plan on Thursday to inject hundreds of billions of yuan into its stock markets as part of a coordinated effort to reverse stagnant performance and boost investor confidence. The measures include directives for state-owned insurers and mutual funds to significantly increase their investments in A-shares, underscoring Beijing's intent to stabilize its domestic capital markets amid broader economic challenges.
The China Securities Regulatory Commission (CSRC) announced that mutual funds must grow their holdings of A-shares by at least 10% annually over the next three years. Additionally, commercial insurers will be required to allocate 30% of new annual premium revenues into stock markets beginning this year, potentially adding "several hundred billion yuan of long-term funds" annually, according to CSRC Chairman Wu Qing.
"Implementing the plan's various measures will further enhance the equity allocation capacity of medium- and long-term funds, steadily expand the scale of investment, improve the supply and structure of funds in the capital market, and consolidate good conditions for the capital market's recovery," Wu said at a press briefing.
The initiative follows a meeting of China's top financial regulators and comes amid weakening investor sentiment, sluggish consumer demand, and geopolitical uncertainties, including U.S. President Donald Trump's threats to impose tariffs on Chinese imports.
Markets initially reacted positively to the announcement, with the Shanghai Composite Index closing 0.5% higher and the CSI 300 blue-chip index rising 0.2%. However, Hong Kong's Hang Seng Index reversed early gains to end 0.6% lower, highlighting lingering market skepticism.
"Medium- and long-term funds play a crucial role in the capital market as professional investors. They act as the 'ballast' and 'stabilizer' to ensure the market runs smoothly and remains healthy," Wu said, emphasizing the importance of these funds in curbing volatility.
The measures are part of a broader strategy to address structural challenges in China's capital markets. Stock prices have been weighed down by a prolonged property sector crisis, deflationary pressures, and fluctuating global demand. Less than 5% of Chinese household wealth is held in equities, compared to nearly 30% in the United States.
Since September, authorities have introduced various initiatives, including an 800-billion-yuan swap and re-lending scheme for stock purchases and guidelines encouraging companies to enhance shareholder returns through buybacks and dividends. Despite these efforts, implementation delays have dampened investor enthusiasm.
"The willingness of long-term investors to participate in the stock market has dwindled," Lei Meng, a China equity strategist at UBS Securities, said in a commentary. "The proposal of market value management reform directly addresses this issue because it relates to investors' sense of gain."
Critics argue that such interventions often fail to deliver sustained results. Stephen Innes of SPI Asset Management described the measures as "akin to attempting to kindle a fire with damp wood," noting that government directives alone are insufficient to drive lasting market recovery.
In addition to boosting domestic investment, Beijing is courting foreign investors. On Wednesday, regulators introduced 20 measures aimed at facilitating cross-border investments. Foreign investors currently account for just 4% of total market value in China, compared to 20% in the United States and 30% in Japan.