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China on Friday unveiled a series of reforms to boost investment in securities markets and strengthen protection of the yuan, the latest move to boost confidence in the world’s second-largest economy.
It comes on the heels of recent bleak economic data showing weak exports, falling consumer confidence and growing fears that China’s once-mighty real estate sector is again in crisis.
Country Garden, China’s largest private homebuilder and widely considered one of the country’s safest developers, defaulted on its international debt this month, while entities linked to sprawling conglomerate Zhongzhi failed to repay savings products this week.
The missed payments added to concerns about the property sector, which drives more than a quarter of China’s economic activity but is mired in an industry-wide crisis after developer China Evergrande Group defaulted on its dollar-denominated debt in late 2021. Liquidity crisis.
Evergrande Group, which is reaching a restructuring deal with international creditors, filed for bankruptcy protection in the United States on Friday.
The China Securities Regulatory Commission said its planned reforms aimed to “enhance the confidence of investors in the capital market”, signaling Beijing’s concerns about the country’s economic and financial health.
The China Securities Regulatory Commission said it was considering extending trading hours in the stock and bond markets, reducing transaction fees for brokerages and encouraging share buybacks to help stabilize stock prices.
Earlier on Friday, the People’s Bank of China stepped up efforts to stem the fall in the yuan, just three days after it unexpectedly cut interest rates to boost consumer confidence.
The People’s Bank of China, under pressure to boost growth, injected 757 billion yuan ($104 billion) of short-term liquidity into the country’s banking system this week. On Friday, it set the yuan’s daily midpoint at 7.2006 per dollar — allowing 2 percent for two-way trading.
Compared with the average estimate of 7.3047 yuan among analysts polled by Bloomberg, it was the widest gap between expectations and the level set by the People’s Bank of China since at least 2018.
“Ideally, they would like to cut interest rates without depreciating the yuan, but you can’t do that given the strength of the dollar and how high interest rates are in the U.S.,” said Shan Hui, chief China economist at Goldman Sachs.
China has set an economic growth target of 5% this year, the lowest level in decades. But the post-coronavirus recovery has been losing steam, with the country mired in consumer price deflation last month.
While further cuts to borrowing costs for businesses and households are expected next week, Beijing has so far shrugged off calls for massive economic stimulus or a housing bailout.
Gavekal Research analyst Xiaoxi Zhang expressed concern about a looming “Lehman moment,” writing in a note this week.
“The good news is that regulatory vigilance means a repeat of the 2008 US crisis is unlikely,” Zhang wrote. “The bad news is that the debt stress of property developers and LGFVs is spreading across the Chinese economy.”
Analysts said the reforms announced by the CSRC were unlikely to fully resolve the woes in the Chinese market, but would help improve short-term sentiment.
The benchmark CSI 300 index of shares listed in China’s Shanghai and Shenzhen has fallen more than 2% this year, while the S&P 500 has gained nearly 14%.
“Share buybacks are a very market-based way to boost confidence and boost share prices of undervalued companies,” said Bruce Peng, chief economist for Greater China at JLL.
Shortly after the CSRC’s announcement on Friday, the Shanghai and Shenzhen stock exchanges confirmed that they would cut brokerage fees by about a third for stock transactions, and slightly for bond transactions.
The China Securities Regulatory Commission has hinted that it will also cut stamp duties on all securities transactions once approval from higher authorities is obtained.
“We are aware of the calls for stamp duty cuts”, the committee said, describing the idea in positive terms as a measure that had historically had “a positive effect on lowering transaction costs and revitalizing markets”.
Additional reporting by Sujeet Indap in New York
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