Chinese banks have applied for over 200 billion yuan ($30 billion) in new loan quotas to fund share buybacks and purchases amid ongoing market challenges, as the People's Bank of China lowers interest rates and establishes a standing relending mechanism for capital market support.
- PBOC approved $30 billion in loan quotas for share buybacks
- Relending interest rate cut to 1% to reduce borrowing costs
- Stock market gained 2% following policy announcement
What happened
This week, major Chinese banks requested more than 200 billion yuan, approximately $30 billion, in loan quotas from the central bank to finance share purchases by listed companies and their major shareholders. This move aligns with Beijing's intensified policy efforts to support the troubled domestic stock market.
Simultaneously, the People’s Bank of China lowered the interest rate on its relending scheme by 0.25 percentage points to 1%, making it cheaper for banks to borrow funds used for stock-buying loans. The scheme, initially a temporary response launched in September 2024, was recently elevated to a standing mechanism with one-year loans extendable upon maturity.
Why it matters
China’s stock market has struggled this year, with the blue-chip CSI300 index down 11% since January and experiencing its steepest monthly decline in a decade during October. The slump has been exacerbated by a selloff in technology stocks and a sluggish broader economy, underscoring the need for government intervention to restore investor confidence.
The relending scheme offers a direct channel for capital injection into the market via share buybacks and increased shareholdings by major investors. By lowering financing costs and institutionalizing this facility, Beijing aims to stabilize equity prices, arrest further declines, and potentially reignite market momentum.
What to watch next
Market participants will be closely monitoring how quickly banks disburse these loans and whether listed companies respond by accelerating share repurchases. Effective uptake could lead to improved stock valuations and renewed investor activity in coming months.
However, some fund managers remain cautious, noting that shareholders may hesitate to borrow funds for stock purchases while prices remain depressed. Thus, the policy’s ability to reverse market sentiment will depend on broader economic conditions and investor confidence recovering beyond just cheaper financing.