China has called on local mutual funds and state-owned insurers to significantly increase their investments in domestic stocks. This is part of a broader initiative by Beijing to restore confidence in its capital markets amid fears of economic stagnation and mounting global uncertainties.
At a press conference on Thursday, Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), announced ambitious investment targets for financial institutions. Mutual funds are expected to raise their onshore equity holdings by at least 10% annually over the next three years, while large state-owned insurers will be required to allocate 30% of their new policy premiums to equities starting in 2025.
The immediate market reaction was optimistic. The CSI 300 Index, which tracks major companies listed in Shanghai and Shenzhen, surged by as much as 1.8%, marking its biggest gain in more than a week. Meanwhile, the Hang Seng China Enterprises Index, which measures mainland stocks traded in Hong Kong, rose 0.8%.
“This policy is quite beneficial to Chinese equities, especially for those state-owned enterprises stocks with high dividend yields,” remarked Jason Chan, senior investment strategist at the Bank of East Asia. “The requirement of 30% of new insurance premiums being invested into stocks is quite surprising, as normally only 15%-20% of insurers’ portfolios are allocated to equities.”
This policy shift represents a significant departure from traditional investment norms in China, where insurers and funds have historically been conservative in their equity exposure. By mandating higher allocations to domestic stocks, Beijing is effectively injecting long-term capital into the market, providing much-needed liquidity and stability.
Market analysts view the move as a critical step toward supporting Chinese stocks, which have faced immense pressure in recent months due to a combination of economic uncertainty and external challenges, including escalating trade tensions with the United States.
The backdrop to this policy announcement is a challenging economic landscape. Chinese stocks have been underperforming for months amid concerns over a prolonged slowdown in growth. The MSCI China Index, a benchmark for Chinese equities, entered a bear market earlier this month, while the CSI 300 Index has shed 3.5% of its value this year, making it one of the worst-performing indices in Asia.
A combination of weak consumer demand, sluggish property market activity, and disappointing manufacturing data has cast a shadow over the world’s second-largest economy. Meanwhile, the threat of renewed US tariffs under President Donald Trump’s administration has added to investor jitters.
Wednesday’s market losses underscored these concerns. The CSI 300 Index ended a four-day winning streak after Trump reiterated that his administration was considering a 10% tariff on Chinese goods, which could take effect next month.
Market participants have grown increasingly frustrated with Beijing’s fragmented approach to economic stimulus. While policymakers have unveiled various measures aimed at boosting growth, many investors feel these efforts lack cohesion and fail to address underlying structural issues.
The latest initiative to guide mutual funds and insurers to invest more in equities is part of a broader package of reforms and interventions. On Wednesday, authorities announced new measures to stabilize the stock market, including a plan to allow pension funds to invest more in listed companies. Additionally, the central bank in September launched a liquidity facility to enable securities firms, funds, and insurers to borrow funds for equity purchases.
However, traders remain skeptical about the effectiveness of these measures. “While these steps are positive, they are not a substitute for meaningful economic reforms or policies that can address China’s long-term growth challenges,” noted Zhang Wei, an economist at a Shanghai-based brokerage.
The policy could have significant implications for state-owned enterprises (SOEs), many of which have struggled with declining profitability and high debt levels in recent years. With mutual funds and insurers directed to channel more capital into the equity market, SOEs with stable dividend yields and strong fundamentals are expected to benefit the most.
“The move is likely to improve liquidity in the market and provide a boost to undervalued SOEs,” said Chen Li, a portfolio manager at a Beijing-based asset management firm. “It could also create more room for these enterprises to restructure and improve their operational efficiency.”
Nonetheless, some market participants have raised concerns about the potential risks associated with mandating large-scale equity investments. Critics argue that forcing financial institutions to invest heavily in stocks could expose them to significant volatility, especially in a market as uncertain as China’s.
China’s equity market struggles come at a time of heightened volatility in global financial markets. The US Federal Reserve’s aggressive interest rate hikes have tightened global liquidity, while geopolitical tensions, including the ongoing conflict in Ukraine, have added to investor unease.
The Hang Seng Index, which is heavily influenced by Chinese stocks, has faced sustained selling pressure as international investors pull out of emerging markets in favor of safer assets. Against this backdrop, Beijing’s latest policy initiatives are seen as an attempt to counteract these global headwinds and restore confidence in domestic markets.
Despite the challenges, some analysts believe that Beijing’s measures could lay the groundwork for a more robust equity market in the long run. By encouraging institutional investors to play a larger role in the market, policymakers are aiming to reduce reliance on speculative retail trading, which has historically dominated China’s stock exchanges.
“China’s market is transitioning from being driven by short-term speculation to becoming more institutionalized,” said Huang Jun, a professor of finance at Peking University. “The government’s push for mutual funds and insurers to invest more in equities is a step in the right direction, but it will take time to see meaningful results.”
In the near term, much will depend on how effectively these policies are implemented and whether they can address the root causes of investor pessimism. Additionally, global factors, such as US-China trade relations and the trajectory of the global economy, will play a crucial role in determining the success of Beijing’s efforts.
