China’s central bank, the People’s Bank of China (PBOC), has introduced a swap facility designed to provide liquidity to institutional investors for stock purchases. This move is part of a broader stimulus package aimed at reigniting the economy and boosting market confidence. Starting Thursday, eligible securities firms, funds, and insurers can apply for highly liquid assets, such as government bonds and central bank bills, by providing certain collaterals. The tool is initially set at 500 billion yuan ($70.6 billion), with the potential for future expansion, according to the PBOC.
PBOC Governor Pan Gongsheng unveiled the facility as part of a stimulus package last month, signaling the government’s intent to support the slowing economy. This package fueled a significant rally, with stocks rising as much as 30%. The funds provided through the swap facility are restricted to stock market investments, with accepted collateral including bonds, stock ETFs, and shares from the CSI 300 index.
The announcement follows a cooling of the stock rally due to a lack of immediate fiscal stimulus after a weeklong national holiday. Investors are now awaiting a press briefing by Finance Minister Lan Fo’an on Saturday for potential signs of increased government borrowing and spending to stimulate growth.
Serena Zhou, senior China economist at Mizuho Securities Asia Ltd., noted that while the policy will likely support the market, its timing may not be directly linked to stock performance. Economic growth momentum has slowed, threatening the government’s target of 5% expansion for the year. Consumer spending remains subdued, with tourists spending less during the recent holiday compared to pre-pandemic levels.