China's Market Rescue: A Bold $278 Billion Stabilization Plan In Play Amid Deepening Crisis

“Enough is enough.” This is likely the sentiment that Chinese authorities should have expressed recently, given the sharp drop in their country’s stock market value over the past year, coupled with Hong Kong-traded stocks plummeting to levels not seen since the summer of 2009.

What Happened: Chinese authorities are reportedly preparing a substantial rescue package to stabilize the floundering stock market. Insiders familiar with the matter revealed to Bloomberg that Chinese policymakers intend to assemble a stabilization fund of about 2 trillion yuan ($278 billion).

This fund will primarily draw from the offshore accounts of Chinese state-owned enterprises and aims to purchase shares onshore through the Hong Kong exchange link.

Additionally, at least 300 billion yuan of local funds will be channeled to invest in onshore shares via entities like China Securities Finance Corp. and Central Huijin Investment Ltd.

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Why It Matters: This move underscores a heightened sense of urgency among Chinese officials to curb a market selloff that pushed the benchmark CSI 300 Index to a five-year low.

Foreign investors have unmistakably exited the Chinese equity market, as evidenced by the more pronounced declines in Chinese stocks traded on the Hong Kong’s Hang Seng index compared to domestic shares.

The establishment of a stabilization fund could be perceived as a lifeline during this protracted crisis, potentially serving as a much-needed turning point.

Bloomberg Intelligence strategist Marvin Chen suggests that while the proposed support package might stabilize markets in the short term, sustained improvement will require additional measures.

Chinese Stocks Rally

Hong Kong’s Hang Seng index, as tracked by the iShares MSCI Hong Kong Index Fund EWH, witnessed a substantial surge of 2.6%, marking its most robust performance since mid-November.

Onshore Chinese stocks, represented by the CSI 300 index, closed with a modest gain of 0.4%. Simultaneously, the offshore yuan strengthened by 0.4% against the US dollar.

In premarket trading Wednesday, Chinese stocks listed on US exchanges showed significant increases, with Alibaba Group Holdings Ltd. BABA rising by 3%, PDD Holdings Inc. PDD by 2.5%, Baidu Inc. BIDU by 2.8%, NIO Inc. NIO by 3.9%, and Li Auto Inc. LI by 4.5%.

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