China Struggles to Stop Stock Market Rout as Insurers Face Blame

China is trying to stop a major stock-market drop just two years after its last rescue effort. Beijing is using the same playbook it used in 2024. The People's Bank of China is giving low-cost funds for stock buybacks and money for institutional investors. Regulators are also using window guidance to tell brokerages and institutions not to sell.

Market Plunge

In October, the Chinese stock market had its worst monthly drop in more than ten years. The blue-chip CSI 300 Index fell into a bear market from its high in late June. The SSE Science and Technology Innovation Board 50 Index, also called the Star 50, dropped as much as 48 percent.

The Blame Game

Hedge funds and insurers are now pointing fingers over the selloff. Hong Liang, the founder of Shiva Capital Group, blamed insurance firms for buying tech stocks near their July peak and selling them in late September. Liang noted this behavior was baffling. Past selloffs were often blamed on quant funds or foreign asset managers. However, margin financing and northbound turnover have both dropped, which means leveraged traders and foreign hot money are not causing the current drop.

State Insurers and Policy

State-owned insurers have increased their stock holdings. China Life Insurance Co. raised its equity allocation to 19.2 percent of its portfolio by the end of June, up from 16.9 percent in 2025. Insurers did this to follow policy advice from the head of China's securities regulator, who urged them to provide long-term capital to the market in mid-June. Authorities have now told several major insurers to report equity holdings and avoid cutting their losses.

Earnings Impact

Insurers must still manage risk and meet claims, which limits their ability to sit on losses. Executives at China Pacific Insurance Group Co. said equity investing has become complicated. Profits at China's five major listed insurers dropped in the third quarter because of falling domestic stocks.

Context

China has faced multiple major stock market downturns that required government intervention over the past decade, including in 2018, 2024, and now. Government efforts to direct state-backed entities like insurers to support the broader market can sometimes conflict with their core need to manage financial risk for policyholders.