Key Takeaways
- China’s central bank has launched a ¥500B scheme to support the stock market.
- Financial institutions can use various assets as collateral under the new funding scheme.
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The People’s Bank of China (PBOC) has established a ¥500 billion ($70.6 billion) funding scheme to support the Chinese capital market. This allows financial institutions such as brokers, mutual funds, and insurers to access liquidity to purchase shares, using their existing stock holdings as collateral.
Participants in the swap facility can use assets like bonds, stock ETFs, and holdings in CSI 300 Index constituents as collateral to obtain liquid assets such as treasury bonds and central bank bills.
The program could be expanded with additional rounds of funding if the initial implementation proves successful, Governor Pan Gongsheng said on Sept. 24. He noted that the PBOC was considering adding another ¥500 billion, which could lead to a total liquidity injection exceeding ¥1 trillion.
The move comes in response to prolonged declines in the Chinese stock market. China’s central bank aims to bolster investor confidence amid broader economic challenges.
The scheme was first announced in late September after the PBOC unveiled a series of monetary easing measures. The central bank said it would cut the required reserve ratio for banks by 0.5%, lowering it from 7% to 6.5%, and would also reduce the seven-day reverse repo rate from 1.7% to 1.5%.
Following the initial announcement of the scheme…
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