China’s pledge to rescue crashing stock markets fails to convince sceptical investors

China’s economic challenges persist; stock markets remain volatile despite CSRC measures.

China, the second largest economy, continues to face difficulties in achieving a robust recovery over a year after initiating the easing of COVID-19 lockdowns. The challenges encompass a real estate downturn, deflationary influences, and demographic issues. On Sunday, the China Securities Regulatory Commission (CSRC) announced its intention to take action against short-selling and insider trading, encourage more investment from medium and long-term funds, and give due consideration to the concerns of investors.
The statement followed a significant decline of up to 3.4% in the blue-chip CSI 300 Index on Friday, despite multiple interventions by Chinese authorities in January to stabilize the stock market and boost demand in the struggling property market. However, Vishnu Varathan, Chief Economist for Asia ex-Japan at Mizuho Bank, remarked in a Monday note that Beijing’s efforts to restore confidence might have come too late.

China’s and Hong Kong’s stock markets are experiencing ongoing volatility, reflecting uncertainty among investors. As of 4:08 p.m. local time, Hong Kong’s Hang Seng Index showed a 0.2% decrease after a 1.3% drop earlier on Monday, contributing to its 9% loss year-to-date. The Shanghai Composite Index was down 1%, having experienced a 3.5% intraday decline.

Meanwhile, the blue-chip CSI 300 Index rebounded by 0.7% after a 2.1% intraday fall, but it remains 6.7% lower for the year. The CSI 1000 Index, tracking small-cap shares, saw an intraday drop of up to 8.7% and is currently 6.2% lower. These ongoing fluctuations in the stock markets of China and Hong Kong have exacerbated losses, reaching a cumulative $7 trillion.

Official data revealed that manufacturing activity in large and state-owned companies has experienced contraction for the fourth consecutive month in January. Nomura economists noted that this indicates a continuing economic downturn that is likely to deteriorate further.
However, the frequent statements from Beijing regarding market stabilization might have a positive aspect. This signifies a departure from Beijing’s cautious approach last year regarding stimulating the debt-laden economy. The current emphasis is on sustainable development following decades of rapid growth. China’s stock markets will undergo a closure on Friday and remain shut for the entire following week in observance of the Chinese New Year holidays.