As the impact of last September’s stimulus package wears off, China is pushing state-owned insurers to buy stocks while offering foreign algos a foothold in the country’s equity markets.
After surging by 30% in days after the Chinese government announced stimulus measures in September 2024, the country’s stock markets are moribund, as investors await US president Donald Trump’s decision on new tariffs. China is now pre-emptively forcing domestic institutions to buy shares while offering foreign liquidity providers led by Citadel Securities a chance of trading approval.
The “Implementation Plan for Promoting the Entry of Medium- and Long-term Funds into the Market” follows conclusions reached at last September’s Third Plenary Session of the 20th CPC Central Committee: that Chinese capital markets needed comprehensive reforms.
There are three main aspects to the initiative. The first is to increase the scale and proportion and medium- and long-term funds invested in A-shares. The market value of A-shares held by public funds will increase by at least 10% annually over the next three years, according to the authorities.
To support this, from 2025 30% of annual new premiums for state-owned insurance companies will be allocated to A-share investments, explained China Securities Regulatory Commission chairman Wu Qing. “The second batch of long-term stock investment pilots for insurance funds will be implemented in the first half of 2025, with a scale of no less than 100 billion yuan, and will be gradually expanded in the future,” he added.
The performance assessment cycle for funds is also being extended for public and state-owned funds. In this way, the authorities aim to increase the stability of medium- and long-term investments. “From the practical experience at home and abroad, this is also conducive to improving the investment returns of various types of medium- and long-term funds,” Qing explained.
Institutional investors will be pushed to engage more directly with listed companies in order to boost capital market investment, and investment banks and institutions will be supported in mergers and acquisitions to build stronger entities.
China has previously shared its intentions to open up to further foreign investment in order to boost capital markets. Currently, goals include the relaxation of access conditions for qualified foreign investors (QFIs), improvements to the listing mechanism between domestic and overseas listings, and an expansion of cross-border connectivity.
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At the end of 2024, 866 QFIs had been approved – the majority of which are based in Hong Kong. Citadel Securities received approval in early 2023, allowing the firm to invest in the country’s stock markets and derivative markets. Recently, Citadel Securities China applied to establish a securities status in Mainland China.
“The door to the opening up of the capital market will only open wider and wider,” Qing affirmed.
Qing stressed that the implementation plan is a systematic, long-term project of institutional reform, requiring collaboration across financial regulators and government bodies. As such, coordination efforts between institutions such as the Ministry of Finance, the People’s Bank of China and the Financial Regulatory Bureau have been strengthened.
Legal regulatory actions will also be enhanced to improve investor protection and supervision efficacy, he added.
The plan states that it will continuously optimise the capital market’s investment ecology, taking stricter control over market entrances and exits. Listed companies will be encouraged to pay dividends and enact repurchases, in line with last year’s stimulus promoting share buybacks.
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On the success of this project, Party Committee of the People’s Bank of China member Zou Lan noted: “More than 300 listed companies have publicly disclosed their intention to apply for stock repurchase and increase holdings loans, with an upper limit of more than 60 billion yuan. Among them, companies with a market value of more than 10 billion yuan account for more than 40%.”
