In a bid to revitalize its underperforming stock markets, the Chinese government has mandated that pension funds and mutual funds increase their investments in domestic shares.
This initiative comes as China’s stock markets continue to linger below their pre-2008 global financial crisis peak, alongside a troubling decline in consumer spending linked to falling housing prices and stagnant share prices.
On Thursday, officials in Beijing announced that mutual funds are required to boost their holdings of onshore stocks, known as A-shares, by at least 10% annually over the next three years. Additionally, commercial insurance funds will be directed to channel 30% of their annual new premium revenue into the share markets this year. Wu Qing, chairman of the China Securities Regulatory Commission, stated that this plan could inject “several hundred billion yuan of long-term funds” into A-shares each year.
The announcement followed a meeting of senior financial officials, including key ministries responsible for pensions and the central bank, signaling a concerted effort to enhance the equity allocation capacity of medium- and long-term funds. Wu emphasized that the implementation of these measures would expand the scale of investments, improve the supply and structure of funds in the capital market, and foster a conducive environment for market recovery.
This strategic intervention comes just ahead of China’s most significant holiday, the Lunar New Year, starting on January 29. This period typically sees increased consumer spending as families celebrate with food, travel, and the traditional gifting of ‘red packets’ filled with money to children and young adults, symbolizing wishes for prosperity.
Following the government’s announcement, stock markets in Hong Kong and Shanghai experienced positive momentum, with the Shanghai Composite index rising by 1.4%. Conversely, the Hang Seng index in Hong Kong, which is partially influenced by limited trading by mainland investors, saw a modest decline of 0.1%.
China’s push to stimulate the stock market reflects broader economic concerns, as policymakers seek to balance investment and consumer confidence in a challenging economic landscape.
