Synopsis
Following a steep selloff triggered by tariff escalations, China’s stock market rebounded as state-linked funds intervened to stabilize prices. The central bank pledged financial support to sovereign wealth funds for stock purchases. This proactive approach contrasts with the US response, highlighting Beijing’s commitment to managing market volatility amid trade tensions.
China’s stock market rebounded after a steep selloff at the start of the week, as a group of state-linked funds known as the national team scooped up assets and the central bank promised loans to help stabilize the market.
The Hang Seng China Enterprises Index rose as much as 3.5% after its worst day since the financial crisis on Monday, while the CSI 300 rose 0.7% following a 7.1% plunge.
Chinese authorities have moved quickly to address the tariff-induced slide in stock prices, using a mix of verbal reassurances and behind the scenes support. The People’s Bank of China sent the latest signal in a statement before the market opened, promising more funding to help a sovereign fund buy stocks.
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Beijing’s attempt to address the turmoil is a contrast to the response of officials in the US, where stocks have also been rocked by fears over a growing trade conflict behind the world’s two biggest economies. While US President Donald Trump has largely shrugged off the market impact, Beijing has turned to a familiar toolkit to calm nerves.
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Step one is unleashing the national team, a group of state-linked investors which are sometimes called on to prop up stock prices. A basket of eight exchange traded funds favored by China’s sovereign wealth fund, widely regarded as a proxy for the national team, saw a net inflow of 42 billion yuan on Monday. China Reform Holdings Corp., another state-backed fund, announced plans to continue buying stocks.
So far, that appears to be enough to address the slide — but investors are bracing themselves for a prolonged period of tensions. After China retaliated against US tariffs by matching the increase in levies, Donald Trump threatened to go further: imposing another 50% tariff on China if it doesn’t back down. Beijing said Tuesday it would “fight until the end.”
The central bank said early Tuesday that it “firmly supports“ Central Huijin Investment Ltd. increasing its holdings of stock market index funds and will provide sufficient re-lending support to the firm when necessary.
