China steps up stock market support with state funds and buybacks

China has intensified efforts to protect its stock market as state-backed funds increase purchases and companies announce larger share buybacks.

Market Support

Nine exchange-traded funds preferred by state-backed investors pulled in 76.7 billion yuan on Tuesday. This marks the second-largest daily inflow on record and the highest since April 8, 2025, when markets faced pressure from US tariff announcements. Buying has picked up since last month following government measures to inject liquidity into the financial system. On Wednesday, the tech-heavy Star 50 Index stabilized after falling nearly 4% in the previous session, while the CSI 300 Index dropped 0.3%.

Corporate Action

Firms are also contributing to the stabilization effort. CXMT Corp.'s chairman proposed expanding the company's share buyback to a range of 2.5 billion yuan to 5 billion yuan to protect investor interests. Similarly, the controlling shareholders of Suzhou Dongshan Precision Manufacturing Co. plan to return at least 1 billion yuan through cash dividends and share buybacks this year. Additional mainland-listed firms, including Ningbo Joyson Electronic Corp., Universal Scientific Industrial Shanghai Co., and Hwatsing Technology Co., have also revealed new buyback proposals. Ningbo Joyson intends to buy back between 150 million yuan and 300 million yuan of its shares.

Policy Measures

The buyback announcements follow a decision by the People's Bank of China to lower the rate on its relending facility from 1.25% to 1% and make the program permanent. This facility offers low-cost funding to banks for loans supporting corporate share buybacks and stake increases by major shareholders. Financial institutions have already applied for over 200 billion yuan in quotas under this program, according to the central bank.

Context

Central banks often step in with liquidity tools during market downturns to prevent sharp asset drops from hurting the broader economy. State-backed buying programs and corporate buybacks are common short-term tools used in major Asian markets to calm nervous investors and cushion steep declines. However, market experts point out that these measures primarily serve to set a floor during selloffs rather than drive long-term rallies.