China's central bank initiates liquidity injection to boost the stock market

The Chinese central bank has launched a swap facility to provide liquidity to institutional investors to buy stocks; this is part of a comprehensive stimulus package recently announced, which has led to a surge in the stock market. The People's Bank of China will accept applications from eligible securities firms, funds, and insurers starting Thursday. These entities can access highly liquid assets, including government and central bank bonds, provided they offer the necessary collateral. The volume of this instrument amounts to 500 billion yuan (approximately 70.6 billion dollars) and, according to the central bank, can be expanded in the future. The tool, introduced by Governor Pan Gongsheng, is part of an extensive package of measures introduced last month to support the faltering economic growth. These steps have triggered a notable increase in stock prices by up to 30%. The funds raised through the swap instrument are to be used solely for investment in the stock market. Bonds, stock ETFs, CSI 300 index components, and other assets can be used as collateral. The announcement of the latest measures comes after a week-long national holiday break. Investors are now anticipating a press conference by Finance Minister Lan Fo'an on Saturday to observe potential measures for increasing government spending and stabilizing growth. According to Dilin Wu, a strategy researcher at Pepperstone Group, the swap measure has revived optimistic market sentiment. The CSI 300 index rose by 2.9% on Thursday morning, recovering from the significant losses of the previous day. Insurers are expected to be the first to use the liquidity instrument, as their stock holdings meet the central bank's collateral requirements, said Wu Xuan of Borui Funds Management. Regulators see insurance funds as an important source of long-term investment in the market. Serena Zhou of Mizuho Securities Asia anticipates that the policy will support the market, though she would not directly link the timing to stock performance. Beijing is intensifying support for the stock market as economic growth has slowed in recent months, jeopardizing the 5% growth target for this year. Private consumption remains sluggish, weighed down by a weak job market. Wages for new hires have fallen after two quarters of growth, as data from Zhaopin showed. During the October holiday, tourists spent less than before the pandemic.