China's Premier Li Qiang orders authorities to attract long-term capital to stabilise stock market after trillion-dollar rout

China's Premier Li Qiang ordered authorities to find ways to attract long-term investors to the country's capital markets, after stock indices in Shanghai, Shenzhen and Hong Kong plumbed fresh lows.

The State Council, as China's cabinet is called, was briefed on the operations of the country's capital markets, according to a report by Xinhua news agency.

The meeting emphasised the need to further improve the basic system of the capital markets, pay more attention to the dynamic balance of investment and financing, vigorously improve the quality and investment value of listed companies, increase the entry of medium and long-term funds into the market, and enhance the inherent stability of the market, according to Xinhua.

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The meeting chaired by Li was the clearest sign of the government's attempt at putting a floor on plunging stock markets on the mainland and Hong Kong, which have lost more than US$1 trillion in combined capitalisation so far this year, according to Bloomberg data.

The Hang Seng Index surged 2.5 per cent at the noon trading break on Tuesday. The stock benchmark slipped 2.3 per cent to below the 15,000-level on Monday, a psychological threshold seen during the October 2022 slump, before China abandoned its zero-Covid policy the following month. The Hang Seng Tech Index sank 3 per cent.

On the mainland's bourses, the declines were sharper on Monday. The Shanghai Composite Index fell 2.7 per cent to a level not seen since April 2020, while the all-share Shenzhen Composite Index plunged 4.5 per cent. Foreign investors have pulled more than 217 billion yuan (US$30 billion) from onshore stocks over the past six months.

"Capital markets now also affect the overall economy" and their weakness reflects the general disappointment in the policy response being not strong enough, Helen Qiao, chief Greater China economist at BofA Global Research, said during a media briefing on Tuesday.

The "vacuum period" of policy and macro data before the National People's Congress in March will be "particularly stressful for investors", she added.

"It is too early to cheer for any solid improvement in sentiment, especially with the ongoing concern about policy risks and a less appealing growth story," said Gary Ng, a senior economist in Hong Kong at Natixis. "The market has clearly not ruled out the possibility of a dead cat bounce until the stimulus is on the table."

No one really knows when stimulus measures will arrive, and this has been confusing for investors, Ng added, given that China's top officials have avoided signalling any kind of "bazooka-style" stimulus to appease investors. Recent decisions to maintain key lending rates have also entrenched belief that no incentives are to be expected.

In his remarks at the World Economic Forum in Davos earlier this month, Li said that during China's post-Covid recovery efforts, the nation "did not resort to massive stimulus, we did not seek short-term growth or accumulate long-term risks", but focused instead on "strengthening internal drivers".

"The Chinese economy can handle ups and downs in its performance. The overall trend of long-term growth will not change," he added.

Additional reporting by Yulu Ao

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