Chinese regulators are ramping up efforts to support the stock market, which saw little reprieve from President Xi Jinping’s speech amid continued pressure from geopolitical tensions and the Covid Zero policy. 

A series of market-supporting measures are in the pipeline, including proposals to encourage companies to buy back shares and to ease curbs on short-term transactions by overseas mutual funds. In a sign that private firms are heeding the government’s efforts, at least eight mutual funds announced plans on Monday to invest in their own equity products.  

The benchmark CSI 300 Index ended up 0.1%, reversing earlier losses as investors weighed Xi’s speech against the prospect of measures. The Hang Seng Index climbed 0.2%, while a gauge of Chinese stocks trading in Hong Kong also eked out gains. 

Stock investors have been looking for fresh market impetus after suffering losses that have been among the worst in the world. Xi’s renewed pledge for tech self-reliance trigged a rally in the sector’s stocks, but the overall market reaction was muted as he defended the Covid Zero policy and fell short of promising further support for the property sector.   

Eoin Treacy's view

The Chinese authorities will be eager to ensure the market and society at large are deeply supportive of President Xi’s third term in office as well as the economic agenda laid out over the weekend. That suggests at least a near-term low for the CSI 300 has been reached.
The bigger question is whether the Taiwan issue risks morphing into China’s Brexit. Nationalist sentiment can only be pushed so far before substantive action needs to be taken. China is not going to do that until they can be sure they are reasonably independent of imports from NATO aligned countries.

The whole effort to slow China’s development of a domestic chip sector is aimed at allowing time for alternative supply to be developed beyond Taiwan’s borders. However, the supply chain for semiconductors is a lot more complicated than anyone is willing to openly discuss. China supplies many of the raw materials for manufacturing so mining, refining, production and manufacturing will all need to be built to decrease reliance of China. That is unlikely to all be achieved before China becomes reasonably self-sufficient.   

Xi has pinned his extended reign on absorbing Taiwan. That suggests efforts to achieve that goal through economic, political, cultural, and military means will escalate over the next five years. In the short-term, the government are going to have to come close to a national lockdown to get Covid under control.
Reliance on debt to fund growth is an undiminished and is anything is accelerating. The risk is the Central Committee may have already reached the conclusion that if they do not make a play for Taiwan soon, the debt issue could overwhelm any effort to do so in the future.
As I’ve discussed in recent videos, the impending oversupply of memory and processing chips is a bigger issue for Taiwan than anywhere else. By 2023, they may be very glad of a willing buyer in China when the globe is flooded with supply.