China’s central bank launches $112 billion schemes to boost stock market

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Written on Oct 18, 2024

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Swap and relending schemes aim to provide liquidity and support share purchases.
20 companies have already been approved to participate in the swap scheme.
PBOC encourages swift implementation of policies to strengthen the economy and capital markets.

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China’s central bank unveiled two new funding schemes on Friday, aiming to inject as much as 800 billion yuan ($112.38 billion) into its stock market.

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These initiatives, introduced by the People’s Bank of China (PBOC), are designed to promote the “steady development” of the nation’s capital markets.

Boosting market stability through new tools

The newly launched swap and relending schemes, initially proposed in late September, are part of China’s broader strategy to stabilize its financial markets.

The country’s recent stock market bull run has started to lose momentum as investor optimism over government stimulus measures has turned to caution.

Despite this, the benchmark CSI300 Index saw a positive turnaround on Friday, closing the morning session 0.8% higher.

The swap scheme, valued at 500 billion yuan, allows brokerages, fund managers, and insurers to access liquidity from the central bank by using assets as collateral to purchase stocks.

According to the PBOC, 20 companies have already been approved to participate, with initial applications surpassing 200 billion yuan.

“The swap scheme will become a market stabilizer,” Xinhua Financial reported, explaining that demand for the tool will rise when stocks are oversold, though the appetite for it will diminish as markets recover.

In addition, this facility enables institutions to secure liquidity during market downturns without needing to sell shares at a loss.

Eligible assets such as bonds, stock ETFs, and holdings in CSI300 constituents can be swapped for more liquid assets like treasury bonds and central bank bills.

The PBOC also launched a 300 billion yuan relending scheme, which allows financial institutions to borrow from the central bank to fund share purchases by listed companies or their major shareholders.

With a one-year interest rate set at 1.75%, 21 institutions—including policy and commercial banks—are eligible to apply for the loans at the start of each quarter.

Listed companies and their shareholders can then borrow from banks at rates of up to 2.25% for share buybacks and purchases.

This scheme is an exception to China’s usual restrictions on bank lending in the stock market.

China’s financial regulators have urged swift implementation of these expansive policies to support the economy and its capital markets.