China Prepares Stock Support Package Including Easier Buybacks and Third Liquidity Round
Key Facts
On November 2, China announced a package of measures to support its declining stock market, including easing rules on share buybacks, preparing for a third round of the central bank’s swap facility, and making permanent a lending program for buybacks and increases in shareholders’ stakes. The China Securities Regulatory Commission said it is reviewing rules on buybacks aimed at supporting share prices. This means the review concerns existing rules, while the announced measures do not indicate that companies will be required to buy shares. The coordinated measures aim to bolster liquidity and investor confidence, according to Caixin Global. The announcement came as the market continued to decline and efforts to support a broader economic recovery faced pressure.
The package includes more than one avenue for supporting demand for shares and providing liquidity: alongside easing buyback rules, authorities are preparing for a third round of the central bank’s swap facility, while the lending program to finance buybacks and increases in shareholders’ stakes will become permanent. The report gave no further details on when these steps would be implemented or the amount of financing involved. The regulatory step announced so far is a review of rules related to share-price support operations. The breadth of the package places this review within a wider response to the market decline, rather than as a standalone measure. Authorities say the measures are intended to support liquidity and investor confidence.
The move coincided with weak official manufacturing data for October, with the manufacturing purchasing managers’ index at 49.3%, according to the National Bureau of Statistics, after falling from September. The bureau attributed the decline to some demand being brought forward ahead of the National Day holiday, as well as a complex and changing international environment. The production index stood at 49.8%, down 1.9 percentage points from the previous month, while the new orders index came in at 49.4% after falling 1.1 percentage points. The new export orders index also fell to 48.7 from 50.0 in September, according to The Associated Press. The reading comes amid weak domestic demand, which the agency linked in part to the continuing property crisis, as Chinese companies ship more goods abroad in search of buyers.
In the market, the CSI 300 index rose 0.79% on November 2, the day the support measures were announced, according to Investing.com data. The move provides an indication of the index’s performance on the day of the announcement, while the source provided no details that would allow the package’s effect to be isolated from other factors. The review of buyback rules remains under consideration, while the announced package included liquidity and lending measures. The focus on these tools comes amid a continued market decline, according to Caixin Global. At the same time, economic recovery difficulties are weighing on the authorities’ broader goals.
Attention is turning to upcoming price and activity data: the National Bureau of Statistics’ calendar provisionally schedules the release of the October consumer price index for November 9 at 9:30. It also provisionally schedules the November monthly purchasing managers’ index report for November 30 at 9:30, with calendar dates subject to change. More broadly, trade may be on the agenda for an expected mid-November meeting between U.S. President Donald Trump and Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in Shenzhen, according to The Associated Press. The release dates for upcoming indicators remain set out in the bureau’s calendar, while the source did not state the outcome of the expected meeting or its effect on markets.