China launches 500 billion yen financing scheme to support stock market

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The People’s Bank of China (PBOC) said today that it has set up a 500 billion yen ($70.6 billion) financing scheme to support China’s capital market. This allows financial institutions such as brokers, mutual funds and insurers to access liquidity to buy shares, using their existing shares as collateral.

Participants in the swap facility can use assets such as bonds, equity ETFs and holdings in constituents of the CSI 300 index as collateral to obtain liquid assets such as treasury bonds and central bank bills.

The program could be expanded with additional rounds of funding if the initial implementation proves successful, Governor Pan Gongsheng said on September 24. trillion.

The move comes in response to prolonged declines in the Chinese stock market. China’s central bank aims to boost investor confidence amid broader economic challenges.

The scheme was first announced at the end of September after the PBOC unveiled a series of monetary easing measures. The central bank said it would cut the reserve requirement ratio for banks by 0.5% from 7% to 6.5% and also cut the seven-day reverse repo rate from 1.7% to 1.5%.

Following the initial announcement of the scheme and measures, market sentiment reacted positively, with major gains in Chinese stock indices. The planned monetary stimulus also boosted US and European stock markets.

In crypto markets, Bitcoin broke its downtrend following news of China’s pandemic-level stimulus package and recent US Fed rate cuts. However, Bitcoin retreated earlier this week due to the lack of new stimulus measures from China at a recent briefing.

Concerns about conflicts in the Middle East and profit-taking also contributed to the market decline. Analysts warn that the latest Chinese stimulus may not maintain momentum compared to previous cycles.

However, with the official release of China’s plan, Bitcoin is expected to move higher, given that similar actions have historically resulted in over 100% increases in Bitcoin’s price. QCP Capital predicted that further stimulus from China could boost bullish sentiment in crypto and other risk assets.

Bitcoin is trading at around $60,800, up slightly over the past two hours, according to CoinGecko data.

Crypto traders are now eyeing the September Consumer Price Index (CPI) report, scheduled for release tomorrow at 8:30 AM ET, for potential indications of price movement.

The year-on-year inflation rate is expected to ease to 2.3% from 2.5% in August, while the core CPI is expected to increase by 0.2% month-on-month and maintain an increase of 3.2% year-on-year.

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