The modest early gains suggest the measures are steadying sentiment rather than sparking a rebound, consistent with the scheme’s role as a backstop. The benefit is likely to be greatest for large, cash-rich companies with high dividend yields, such as state-owned banks and energy firms, which can borrow cheaply to buy back shares. The tool does little directly for the tech and AI names behind October’s sell-off, so Hong Kong-listed tech remains exposed to AI earnings concerns. For the Australian dollar and iron ore, stabilising Chinese equities offer marginal support, but property and consumption data remain the bigger drivers.
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Beijing is not buying stocks itself, but it is making it very cheap for companies and their owners to do so, and demand for that money is climbing fast.
Summary:
- Applications for the PBOC’s share buyback and stake-increase relending scheme have topped 200bn yuan, about $30bn
- The PBOC said it has intensified the policy to keep capital markets stable
- This week it cut the facility rate to 1% from 1.25%, made the tool permanent and widened eligibility
- A separate 100bn yuan asset swap facility for brokers, fund managers and insurers began on Tuesday
- The CSI 300 fell 8.5% in October, its worst month in a decade, on doubts over AI and tech spending
- Shanghai stocks edged higher in early trade
Applications for China’s central bank-backed share buyback loans have topped 200bn yuan, or about $30bn, the People’s Bank of China said on Wednesday, according to Reuters. Authorities are stepping up efforts to steady a stock market that has suffered its worst month in a decade. Mainland shares edged higher in early trade, with the Shanghai Composite up about 0.2% at around 3,610 shortly after the open.
The PBOC said it had intensified its share repurchase and shareholding relending policies to keep capital markets stable. The update follows a meeting on Monday at which the central bank and financial and securities regulators met major banks to discuss how to improve the scheme.
So how does it work? The facility, launched in October 2024 with a quota of 300bn yuan, is a form of targeted cheap funding. Commercial banks lend to listed companies so they can buy back their own shares, and to major shareholders so they can raise their stakes. The PBOC then supplies low-cost funding to the banks to cover those loans, which is what relending means. The central bank does not buy shares itself. Instead, it lowers the cost for companies and their main owners to do so.
The aim is to put a floor under prices. Buybacks reduce the number of shares in circulation and signal that insiders see value at current levels. Because the loans are cheap, a company can borrow to buy its own stock when its dividend yield exceeds the cost of borrowing, which turns falling prices into an incentive to buy.
Authorities made the scheme more generous this week. On Monday, the PBOC cut the interest rate it charges banks under the facility to 1% from 1.25%, made the tool a permanent part of its policy kit and widened the range of eligible companies. It also opened a separate asset swap facility of about 100bn yuan. That facility lets brokers, fund managers and insurers swap assets for more liquid securities, which they can use to raise cash to buy shares.
The push comes after a sharp sell-off. The CSI 300 index of major mainland stocks fell 8.5% in October and entered a bear market on 20 October, hit by doubts over whether Chinese AI and technology companies will earn back their heavy spending. Goldman Sachs estimates that AI-linked firms make up about 42% of the market value of Chinese shares listed on the mainland and in Hong Kong.
Tools like this have limits. Buybacks support prices but do not fix the underlying problems weighing on Chinese stocks, including weak consumption and a long property downturn. Repurchased shares that are not cancelled can also be sold back into the market later, and borrowing to buy stock adds to corporate debt. The scheme works best as a backstop that slows selling, rather than as a trigger for a lasting rally.
This article was written by Eamonn Sheridan at investinglive.com.