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Woes for the Chinese stock market continued in 2024, as reflected in the prolonged decline of the country’s benchmark index CSI 300, which is now in its fourth consecutive year of downturns. Amidst challenges like deep property market crisis, fading consumer confidence, and deflation, Chinese and Hong Kong stocks erased a combined $6 billion since their 2021 peak. In response to these headwinds, Beijing is considering deploying a $278 billion rescue package.

CSI 300 Lost Over a Third of its Value Since 2020

Since 2020, the CSI 300 has lost over a third of its value. The Hang Seng Index in Hong Kong, encompassing shares of major Chinese companies, has already plummeted by 10% this year, marking it the worst-performing major stock index in Asia.

The cumulative effect of these declines has resulted in a substantial erosion of more than $6 trillion from the combined market value of Chinese and Hong Kong stocks since their peak in 2021.

This highlights Beijing’s formidable challenge in attempting to reverse the downward trajectory and restore investor confidence. The ongoing selloff has triggered capital flight from foreign investors, prompted smaller domestic investors to seek refuge in safer assets, and led emerging-markets-focused funds to adopt strategies excluding China from their portfolios.

Despite having a complex relationship with the stock market, China’s government acknowledges its pivotal role in the country’s economic transformation, particularly in the technology sector. However, amidst deflation, weak consumer confidence, and an extended slump in the real estate market, the government grapples with balancing its interventions to stabilize the market while fostering capital-raising initiatives crucial for its economic vision.

The economic optimism that marked the beginning of 2023 waned steadily after the release of disappointing economic data. According to official figures, the country’s economy grew 5.2% in 2023, roughly matching the government’s target.

China Considers Launching Stabilization Fund to Revitalize Stocks

Chinese authorities are exploring new measures to stabilize it inn a bid to stop the ongoing stock market rout and boost investor confidence.

Notably, policymakers are contemplating launching a stabilization fund to mobilize around 2 trillion yuan ($278 billion) primarily from offshore accounts of Chinese state-owned enterprises. This fund would be deployed to purchase shares onshore through the Hong Kong exchange link. In contrast, an additional 300 billion yuan from local funds may be invested in onshore shares through entities like China Securities Finance Corp. and Central Huijin Investment Ltd.

However, skepticism persists about the effectiveness of these measures in halting the market downturn, given the compounding challenges from the ongoing property crisis, weakened consumer sentiment, declining foreign investment, and diminished business confidence.

Past attempts to bolster the stock market have proven insufficient, and authorities remain cautious about implementing significant economic stimulus, despite numerous calls from equity investors.

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