(Bloomberg) — China’s central bank set up a swap facility to provide liquidity for institutional investors to buy shares, part of a previously announced broad stimulus package that sparked a rally in stocks.
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The People’s Bank of China will begin accepting applications from eligible securities firms, funds and insurers on Thursday to acquire highly liquid assets such as government bonds and central bank notes if they provide certain collateral. The size of the instrument is 500 billion yuan ($70.6 billion) and could be expanded in the future, the monetary authority said in a statement.
PBOC Governor Pan Gongsheng unveiled the mechanism last month as part of a stimulus package that signaled the government’s intention to turn a blind eye to the slowing economy. These moves sparked a global rally with shares rising as much as 30%.
The money obtained through the facility can only be used for investments in the stock market, Pan said at the time. Bonds, stock ETFs, CSI 300 shares and other assets can be used as collateral, the PBOC said Thursday.
The latest announcement comes as the stock market rally cools due to the lack of immediate fiscal stimulus following a weeklong national holiday. Investors are now awaiting a press conference by Finance Minister Lan Fo’an on Saturday for indications of steps to boost government borrowing and spending to support growth.
The CSI 300 Index rebounded Thursday after a heavy sell-off the day before. The price ultimately closed down 1.1%, after previously swinging between gains and losses.
Insurers are likely to be the first to rely on the liquidity tool, partly because their shareholdings meet the PBOC’s collateral requirements, said Wu Xuan, fund manager at Borui Funds Management. Regulators see insurance funds as an important source of long-term investment in the market, he said.
“They carry more of a ‘political task,’” Wu said. “I expect more details in the coming weeks and the first batch using the tool within two to three months.”
Serena Zhou, senior China economist at Mizuho Securities Asia Ltd., said the policy is expected to support the market, although she would not link the timing to stock performance.
Authorities have stepped up support for the stock market and economy as growth momentum weakened in recent months, threatening Beijing’s target of around 5% growth this year.
Consumer spending remains sluggish and under pressure from a weak labor market.
Wages offered to new hires in China have fallen after two consecutive quarters of gains, according to data from online recruitment platform Zhaopin Ltd. and compiled by Bloomberg. Tourists also spent less money during the long October holiday than before the pandemic.
–With assistance from April Mon.
(Updates with stock market performance in sixth paragraph.)
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