🌍 China is preparing for a major stock market intervention

Plus: Elections this weekend

Hi Intriguer. I first arrived in Beijing in 2015, just as China (and the world) was dealing with the fallout of the Shanghai stock market crash. The Chinese government spent about $240B to prop up the stock market at the time, with limited success.

If history doesn't repeat itself, then it often rhymes - our briefing today looks at reports that China is once again planning to spend a lot of public money to prop up its slumping stock markets.

Looking back, I think the 2015 crash was the moment when Xi Jinping decided that China could no longer be at the whim of free market dynamics and that the Communist Party needed more control over all facets of the economy.

- John Fowler, Co-Founder

Was this forwarded to you? We're a team of ex-diplomats producing a concise and engaging geopolitical briefing for 85k+ leaders each day. It’s free to subscribe.

TODAY’S NEWS

Turkey approves Swedish NATO bid. The Turkish Parliament approved Sweden’s NATO membership with an overwhelming majority on Tuesday, 20 months after the Nordic country’s application. Stockholm is now only waiting on Hungary to greenlight its membership.

Trump wins New Hampshire primary. Despite her loss, Nikki Haley (who was US ambassador to the United Nations under Trump) vowed to keep fighting for her party’s presidential nomination. Bit of bad news for Haley, though - no Republican candidate has ever won the first two states and not gone on to be the party’s choice for president.

Plane carrying Ukraine military prisoners crashes. The Russian aircraft, which was carrying 65 Ukrainian military prisoners, was involved in a prisoner swap. It is not yet clear what caused the crash.

US asks China for help with Iran. Senior US officials - including National Security Adviser Jake Sullivan and Secretary of State Antony Blinken - have repeatedly asked China to convince Tehran to prevent Houthi rebels from attacking shipping in the Red Sea. China has so far been reluctant to help.

EU must invest €1.5T per year to hit climate goals. The number comes from a draft report outlining how the EU can slash emissions by 90% by 2040. Climate change and environmental regulation are sensitive topics in Europe right now after recent farmers’ protests in the Netherlands, Belgium, Germany, France and Romania.

Semiconductor slowdown over? Global orders for ASML’s sophisticated lithography machines, which are used to manufacture leading-edge chips, tripled in Q4 2023, the Dutch company said this morning. ASML expects a slowdown in sales this year as restrictions against selling its most advanced technology to China begin to take effect.

18 Ukrainians were killed in Russian strikes yesterday. The strikes targeted Ukraine’s two biggest cities, Kyiv and Kharkiv. Ukraine’s foreign minister, Dmytro Kuleba, told German media on Tuesday that the attacks show the West isn’t supplying Ukraine with enough air defence missiles.

TOP STORY

China is preparing for one of the biggest stock market interventions in history

Will the intervention slow China’s stock market fall?

Beijing is reportedly weighing a ~$278B intervention into China’s stock market, with an announcement expected as soon as this week. 

To put that into perspective, China spent ~$240B bailing out 22 countries struggling with their Belt and Road Initiative payments from 2008 to 2021.

It’s been a tough few years for China’s stock markets: 

  • An index tracking the Shanghai and Shenzhen stock markets (the CSI 300 Index) has lost a third of its value since 2021. It closed at a five-year low on Monday.

  • Hong Kong’s market is down 10% this year, making it the worst-performing market in Asia.

  • And China’s overall foreign investment flows have turned negative for the first time since records began in 1998.

What’s causing all this? 

China’s stock market is like a straw in the wind, and right now, it's being buffeted by a mix of economic challenges like rising debt, record youth unemployment, a shrinking population, a real estate crisis, and government crackdowns. All that has eroded investor confidence, which is showing up in falling stock prices.

Markets have been waiting for President Xi to jolt things back to life with rate cuts and stimulus, as China did back in 2008 in a package worth $586B. But this time, he’s moved slowly, mindful of possible side-effects on debt, the yuan, and beyond.

Why intervene now?

Problems in China’s stock market are metastasising from the economic to the political. More than 220 million Chinese people are invested in stocks. Combine that with households who’ve already got 70% of their wealth tied up in a limp property sector, and you’ve got a lot of anxious and potentially very angry people.

That’s got to be unnerving for Xi and the Chinese Communist Party, whose political legitimacy is tied to China’s prosperity.

So, here’s how Xi plans to respond: Bloomberg reports that his team is looking to use offshore funds held by state-owned enterprises (SOEs) and pool them to “buy shares through the Hong Kong exchange link” and halt the market’s fall. 

But reactions so far have been mixed.

While Chinese and Hong Kong stocks jumped on the news, international investors seem less convinced: a $278B package, while big, probably isn’t big enough to address China’s underlying problems.

INTRIGUE’S TAKE

It’s hard to think of a better way to encapsulate China’s unique model: using offshore funds from state-owned enterprises to prop up a stock market.

But will it work?

Maybe this move helps stabilise prices and puts a floor under consumer confidence. Or maybe it doesn’t, and the malaise spreads to SOEs who end up holding a quarter of a trillion dollars in declining stocks.

When talking about the animal spirits of a market, the outcome often rests less on the substance of any package and more on the signal it sends.

The signal Xi likely wants to send here is that he means business. But the signal many will actually hear is that he’s worried.

Also worth noting:

  • On Monday, Chinese Premier Li Qiang called for ”forceful” interventions to “enhance the inherent stability of the market”, walking back his comments in Davos last week that China “did not resort to massive stimulus”.

SUPPORTED BY DOORDASH

Restaurants and more, delivered to your door

DoorDash is the ultimate solution for all your food delivery needs. Whether you're craving a late-night snack, a quick lunch, or a fancy dinner, DoorDash has you covered.

With a vast selection of local restaurants and a seamless ordering process, DoorDash is the perfect way to enjoy your favorite meals from the comfort of your own home. So sit back, relax, and let DoorDash do the work for you.

MEANWHILE, ELSEWHERE…

  1. 🇺🇿 Uzbekistan: President Mirziyoyev has lambasted officials for failing to adequately boost exports. He says part of the solution lies in diversifying away from the country’s traditional markets like China, which bought 10% less from Uzbekistan last year. 

  2. 🇭🇺 Hungary: Sweden has declined Hungary’s invite to negotiate over Sweden’s NATO bid, instead calling on Hungary to approve it as soon as possible. Hungary has long bristled at Swedish criticisms of its democracy, and is now playing hardball to extract concessions from its European allies.

  3. 🇹🇭 Thailand: Thai officials have walked back last week’s claims that the world’s third-largest lithium reserves were discovered in the country’s south. It turns out the ore only contains around 0.45% lithium, whereas a typical mine’s ore contains more like 1-2%.

  4. 🇻🇪 Venezuela: Authorities have issued 14 arrest warrants for alleged plots to assassinate President Maduro and his defence minister. One of the accused, a human rights lawyer living abroad, responded that Venezuela “continues to criminalise the work of lawyers”.

  5. 🇨🇻 Cape Verde: US Secretary of State Blinken has kicked off a four-country tour across Africa with a visit to the Portuguese-speaking archipelago of Cape Verde. His visit comes as security deteriorates in the Sahel region, and China continues its push for more regional influence.

GIF OF THE DAY


A magnitude 7.1 earthquake hit China’s border with Kyrgyzstan yesterday, causing extensive damage to buildings and killing three. Relief operations are underway but are being complicated by Xinjiang’s sub-zero temperatures. Folks as far away as Kazakhstan felt the tremors ripple across the Eurasian continent. 

DAILY POLL

Do you think China's economic woes are worse than what the government is letting on?

Login or Subscribe to participate in polls.

Yesterday’s poll: What do you think is the single most important risk for global insurance companies today?

🟨🟨⬜️⬜️⬜️⬜️ ⚔️ Geopolitical risk (21%)

🟩🟩🟩🟩🟩🟩 🌊 Climate change (51%)

🟨🟨⬜️⬜️⬜️⬜️ 💻 Cybersecurity (22%)

⬜️⬜️⬜️⬜️⬜️⬜️ 🌍 Economic headwinds (4%)

⬜️⬜️⬜️⬜️⬜️⬜️ ✍️ Other (write in!) (2%)

Your two cents:

  • 🌊 D.D: “Hurricanes alone caused more than $80 billion in damage in the US in 2021. That is more than what the US has provided Ukraine. Add other climate-related damage (fires, floods, freezes, etc.) and we are talking about hundreds of billions of dollars a year in the US alone. And this number will only go up.”

  • 💻 Y.J: “When you hear about hackers taking over hospitals and demanding money to unlock their systems .. that’s cold, very cold!”

  • ⚔️ C.B: “The industry is hardening in markets once considered low risk due to internal or external geopolitical tensions.”

  • ✍️ M.A: “Surely it is the moral risk of there being an afterlife.”

Reply

or to participate.