China’s Central Bank Unveils 800 billion Yuan Funding Initiatives to Boost Stock Market Stability

China’s central bank launched two funding initiatives on Friday, which are set to inject up to 800 billion yuan (approximately £112.38 billion) into the stock market via newly established monetary policy instruments.

The People’s Bank of China (PBOC) outlined the operational specifics of the swap and relending schemes initially revealed in late September, intending to foster the “steady development” of capital markets.

China’s recent surge in the stock market is losing momentum as initial excitement gives way to caution regarding the scale and execution of Beijing’s stimulus commitments. The benchmark CSI300 Index recovered from earlier declines, closing the morning session on Friday with a rise of 0.8%.

Through a swap programme valued initially at 500 billion yuan, brokerages, fund management firms, and insurers can secure liquidity from the central bank by using assets as collateral to purchase stocks. The People’s Bank of China (PBOC) has announced that 20 companies are currently approved to participate in this scheme, with initial applications surpassing 200 billion yuan.

In an article published on Friday, Xinhua Financial stated that “The swap scheme will become a market stabiliser” as demand for the tool increases when stocks are excessively sold. However, interest tends to diminish once the market starts to recover.

Furthermore, institutions can utilise this tool to secure liquidity during a stock market downturn without needing to sell shares amid falling prices.

Through this facility, assets such as bonds, stock exchange-traded funds (ETFs), and holdings in companies listed on the CSI300 Index can be traded for more liquid assets, including treasury bonds and central bank bills, thereby providing participants with improved access to funding.

Frances Ibiefo

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