China is reportedly directing its state banks to purchase stocks, hoping to prevent excessive selling. The move seems to aim at stabilizing the local market given the recent declining performance of the economy.
Shanghai indices have been on the declining trend, poised to reach the year-to-date low induced by the suspension of trading for the struggling real estate firm Evergrande.
There’s no clear indication as to the purpose of the recent move. However, seemingly related, Consul General of China in Belfast Zhang Meifang tweeted that the country’s central bank is raising the foreign exchange risk reserve ratio for foreign exchange forwards trading from 0 to 20%.
The hike is set to rein in yuan’s depreciation by making it more expensive for financial institutions to buy foreign reserves through currency forwards. Officially, the People’s Bank of China said the move is for “stabilising FX market expectations and strengthening macro prudential management.”
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Beijing is known for acting upon declining economic indicators with artificial means. Early in February 2022, the country used its state-backed funds to stage a strong recovery for the CSI 300 Index that had just had its biggest intraday drop in a year.
The Chinese government also recently announced that the China Construction Bank would create a US$4.2-billion fund to purchase real estate properties from developers, in the hopes of reviving the industry activity.
Information for this briefing was found via Watcher Guru and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
One Response
‘given the recent declining performance of China’s economy’?
Do the stats suggest decline?
2020: China GDP grew 2.2%. America shrank 3.4%
2021: China’s GDP grew 8.1%, US 5.7%
2022: China grown 3%, US 1.3%
2023, China’s 13.8% richer, US 3.4% richer.
Btw, China has 6,834 Covid deaths and 38,000 long Covid invalids, US 1,050,000 dead and 3 million invalids.