Summary of Key Points
On July 19th, the state-owned capital operation firms "Twins Star" China Chengtong (with nearly 10 billion yuan) and China Guoxin (over 50 billion yuan) joined forces again to stabilize the market. For the first time, China Guoxin utilized a special reloan program from the central bank for stock repurchase and shareholding increases, with a total investment of over 60 billion yuan, focusing on technology stocks and ETFs. This market rescue effort differs from previous ones in that it uses more flexible funding tools and has greater transparency in the amount invested, sending a signal of "state support." The A-share market is currently facing multiple challenges, including a weak domestic economy, competitive pressures from AI, and leverage risks. Experts are calling for the acceleration of the improvement of the stabilization fund system to break the vicious cycle in the market through counter-cyclical measures.
What Makes This Market Rescue Different?
There are two significant "new changes" this time:
1. Upgraded Funding Tools: China Guoxin used a special reloan program for stock repurchase and shareholding increases introduced by the central bank in September 2024, which offers low-interest rates of only 1.75%, significantly cheaper than regular loans. This indicates that the funds for market rescue are no longer solely coming from state-owned capital; the central bank is directly providing liquidity support, thus fully opening up this channel.
2. Public Disclosure of Amounts: In previous cases, it was rare for state-owned capital to disclose the exact amount invested. This time, China Guoxin explicitly stated an investment of over 50 billion yuan, and China Chengtong contributed nearly 10 billion yuan, totaling over 60 billion yuan. Such transparent operations send a stronger signal of the state's commitment and help avoid speculation, thereby stabilizing market confidence.
Compared to the "Golden Pit" market rescue in April 2025, which mainly involved Huijin's investment in ETFs, this time China Chengtong and China Guoxin targeted technology stocks and ETFs more directly, with a clearer focus on supporting new drivers of growth and diversifying funding sources.
Why Are the Current Market Risks More Troublesome?
The background for this market rescue is much more complex, with several risk factors interacting negatively:
1. **Domestic Economic "Cold Cycle": In June, consumer spending, investment, and real estate data were all weak—consumers are hesitant to spend, businesses are reluctant to invest, and real estate sales have declined. A decline in the stock market and real estate sector can create a vicious cycle: shrinking assets lead to even less consumption, which in turn worsens the economy and causes the stock market to fall further.
2. AI Competition Is Crucial: The AI industry is a competitive race between China and the United States, and domestic leaders need funding from the stock market for research and development. If the stock market continues to decline, AI companies may fall behind, affecting the country's technological competitiveness.
3. High Pressure on Fund Security: "National teams" such as Huijin and pension funds have already invested heavily in the market, and they cannot afford significant losses (as these investments affect people's livelihoods and national credibility). Additionally, there are 3 trillion yuan in leveraged positions (money borrowed for stock trading), which could lead to forced liquidations if the stock market continues to decline, triggering a chain reaction of selling.
4. External Challenges: Volatility in the Korean market and renewed tensions between the US and Iran have made it difficult for foreign investors to buy A-shares, adding to the pressure on the market.
What Are the Missing Pieces in the Stabilization Fund System?
Experts believe that the current "quasi-stabilization funds" (including Huijin, China Chengtong, and China Guoxin) are not yet perfect and need three improvements:
1. Sufficient and Diverse Funding: The stabilization fund should not rely solely on one entity; the central bank, the Ministry of Finance, and major financial institutions should all contribute. Normally, financial institutions can provide funding, but during crises, the central bank and the ministry should step in to ensure sufficient capital (for example, by setting a scale that can cover irrational market fluctuations based on international practices).
2. Scientific Management: A dedicated committee should be established, involving regulatory authorities, financial experts, and institutional representatives, to determine when to intervene, what to buy, and what the risk limits are—avoiding random purchases or waiting until the market collapses.
3. More Long-Term Funds: Attracting long-term investors such as pension funds and insurance companies is essential; these investors do not seek short-term gains but aim for stable returns, which can help stabilize the market. For instance, improving the investment returns for long-term funds would encourage them to stay in the stock market.
How Does Counter-Cyclical Regulation Help Stabilize the Market?
Counter-cyclical regulation means taking action when the market is weak and tightening measures when it is strong. Specific actions include:
1. Reducing Burden on the Primary Market: Slowing down the issuance of new stocks (IPOs) and limiting corporate refinancing to prevent excessive capital withdrawal from the market.
2. Supporting the Secondary Market: Using stabilization funds to directly buy stocks/ETFs and encouraging listed companies to increase their shareholdings or repurchase their own shares (39 Shanghai-listed companies have recently announced such plans), thereby boosting investor confidence.
3. Coordinated Policy Actions: The central bank's low-interest loans, financial support from the Ministry of Finance, and regulatory measures from the Securities Regulatory Commission should work together. Examples include previous "swap facilities" that made it easier for financial institutions to buy stocks and the current special reloan program.
In summary, the goal is to use tangible measures to break the vicious cycle in the market—preventing further declines in the stock market, stopping asset shrinkage, encouraging consumption, improving the economy, and leading to a positive upward trend.
Market Response
On July 20th, the Shanghai Composite Index rose by 0.85%, but the Shenzhen Component Index and the North Star 50 Index were still declining, with over 3,700 individual stocks falling. This shows that the market rescue efforts have been communicated, but it will take time for confidence to recover. However, experts also mention that "more measures are in the works," and additional substantial policies may be introduced in the future.
Overall, this market rescue is not a one-time effort but part of a broader initiative to improve the stability of the capital market. It aims to provide short-term support while establishing long-term mechanisms to ensure that the stock market truly serves as a reliable barometer of the economy.