China lines up a host of measures to ease market unrest, drive economic growth

The selloff across China's equity market due to the country's slower-than-expected recovery post COVID prompted a slew of measures from the government.

The Chinese government has unleashed a flurry of measures to rein in the unrest in the markets and boost economic recovery. The country’s growth has fallen from its usual brisk 8 percent annual pace to around 3 percent, the real estate sector is rattled by overbuilding, the stock market has plunged and the currency is teetering. Chinese citizens, frustrated by protracted Covid lockdowns and losing confidence in the government, failed to consume their way out of the country’s pandemic-era malaise.

Much of the measures taken up by the government are aimed at bolstering the country's equity markets and fuelling an increase in spending. China's blue chip index had shed 2 percent last week to hit its lows for the year so far. However, a few measures announced by the authorities over the weekend helped the benchmark CSI 300 index rebound as much as 5.5 percent on August 28.

The latest measures lined up during the weekend add to the government's continuous attempt to revive the economy and businesses through the last months.

50% reduction in stamp duty on stock trades

The Chinese authorities have halved the stamp duty imposed on stock trades to 0.05 percent from 0.1 percent, starting August 28, according to an announcement from the country's finance ministry. It also marks the first instance of a cut in stamp duty since 2008.

The move is aimed at revitalising the capital markets and enhancing investor trust amid an intensifying sell-off across Chinese equities.

Slowing down the pace of IPO floats 

The China Securities Regulatory Commission has announced its plan to reduce the frequency of initial public offerings (IPOs) in response to "current market conditions". However, it did not disclose the specific details.

Additional regulatory actions include restrictions on stake sales by significant stakeholders in firms where stock prices have dipped below IPO or net asset levels, along with lowered margin ratios for leveraged trading.

Easing crackdown on tech companies

Foreign companies have expressed concerns about the government's recent regulatory action on the technology sector. In response, the Communist Party and the government issued an unusual joint commitment on July 19 to enhance conditions for private enterprises, following nearly two years of regulatory scrutiny of the tech sector. Beijing unveiled a set of 31 measures, including pledges to treat private firms on a par with state-run enterprises, involve entrepreneurs more in policy-making, and reduce market entry barriers for businesses.

Also Read | China stocks surge as steps to boost markets lift sentiment, CSI 300 jumps 5.5%

On July 27, the central bank urged banks and financial markets to provide greater support for innovation and tech-related acquisitions while boosting investment in startups.

The Chinese authorities have advised companies listed on Shanghai's science and technology board to contemplate share buybacks as a strategy to stimulate activity in those markets and stabilize share prices.

Surprise rate cut

In a surprise move on August 15, the People's Bank of China enacted its most substantial reduction in the main policy interest rate since 2020, marking the second rate cut this year. This decision coincided with the imminent release of July's economic data, which revealed sluggish growth in consumer spending, declining investment, and a rise in unemployment.

Several economists found the August rate cut promising, as they believed it could pave the way for increased fiscal support measures.

Other measures

Additionally, officials have urged certain investment funds to refrain from becoming net sellers of equities, particularly in light of foreign institutional investors consistently divesting from Chinese-listed companies.

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