China moves to shore up investor confidence in the economy

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China on Friday unveiled a package of reforms to boost investment in its securities markets and stepped up its defence of the renminbi, in the latest efforts to shore up confidence in the world’s second-largest economy.

The moves follow recent gloomy economic data that showed weakening exports and waning consumer confidence, amid growing concern about the risk of renewed crisis in China’s once-mighty property sector.

Country Garden, China’s largest privately owned homebuilder and widely seen as one of the country’s safer developers, missed payments on its international debts this month, while entities linked to sprawling conglomerate Zhongzhi this week failed to repay savings products.

The missed payments have fuelled fears about the property sector, which drives more than a quarter of Chinese economic activity but fell into a sector-wide liquidity crisis after developer China Evergrande defaulted on its dollar-denominated debts in late 2021.

Evergrande, which is pursuing a restructuring agreement with international creditors, filed for bankruptcy protection in the US on Friday.

In an indication of Beijing’s concern for the country’s economic and financial health, the China Securities Regulatory Commission said its planned reforms were designed to “boost capital market investor confidence”.

The CSRC said it was considering extending trading hours for the stock and bond markets, would cut transaction fees for brokers and would encourage share buybacks to help stabilise stock prices.

Earlier on Friday, the People’s Bank of China intensified its efforts to stop a slide in the renminbi, just three days after it made an unexpected cut to interest rates aimed at pepping up consumer confidence.

The PBoC is under pressure to bolster growth and this week injected Rmb757bn ($104bn) of short-term liquidity into China’s banking system. On Friday, it set the daily midpoint for the renminbi — around which it is allowed to trade 2 per cent in either direction — at Rmb7.2006 to the dollar.

That compared with an average estimate of Rmb7.3047 from analysts polled by Bloomberg, the biggest gap between expectations and the level set by the PBoC since at least 2018.

“Ideally they’d want to cut rates without renminbi depreciation, but given how strong the dollar is and how high US interest rates are, you can’t do that,” said Hui Shan, chief China economist at Goldman Sachs.

China has set an economic growth target of 5 per cent this year, its lowest in decades. But its post-Covid recovery has been losing momentum and the country slipped into consumer price deflation last month.

Beijing has so far shrugged off calls for a significant economic stimulus or a property sector bailout, although further cuts to borrowing costs for businesses and households are expected next week.

Xiaoxi Zhang, an analyst at Gavekal Research, wrote in a report this week of concerns about a looming “Lehman moment”.

“The good news is that regulatory vigilance means a rerun of the 2008 US crisis is unlikely,” Zhang wrote. “The bad news is that debt strains from property developers and local-government financing vehicles are spreading across China’s economy.”

Analysts said the reforms unveiled by the securities regulatory commission were unlikely to fully address the malaise hanging over Chinese markets, but would help improve sentiment in the short term.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks is down more than 2 per cent this year, compared with a rise of almost 14 per cent for the S&P 500.

“Share buybacks are a very market-oriented way to boost confidence and raise share prices for undervalued companies,” said Bruce Pang, chief economist for Greater China at JLL.

Shortly after the CSRC announcement on Friday, the Shanghai and Shenzhen stock exchanges confirmed they would cut equity transaction handling fees for brokers by roughly a third, while fees for bond trades also received a slight reduction.

The CSRC implied it would also roll out cuts to stamp duties, which are levied on all securities transactions, once it receives approval from higher authorities.

“We’re aware of calls for stamp duties to be cut,” the commission said, describing the idea in positive terms as historically a measure that “played a positive role in reducing the cost of trading and revitalising the market”.

Additional reporting by Sujeet Indap in New York