Unprecedented Financial Policies to Support High-Quality Development

The phrase ‘too busy to sleep’ has become a metaphor for the state of selling-side strategists these days. On the morning of September 24th, a series of financial policies were jointly introduced by one bank, one bureau, and one meeting to support high-quality development. The policies clearly send a positive signal of stabilizing the economy, market, and expectations, with unprecedented policy strength and the release of more than expected total policies, which have elicited a strong response from the capital market.


The financial policies announced at this press conference cover three core areas: the capital market, the real estate market, and the real economy. How will the implementation of reserve requirement ratio cuts and interest rate reductions, the convergence of five real estate policies, and a series of policy combinations in the stock market, including non-bank financial institution swaps and stock repurchase, affect the market? Many institutions have provided interpretations.


Regarding the policies exceeding expectations, Zhang Xia, Chief Strategy Analyst at China Merchants Securities, stated that they are expected to reverse three types of confidence: first, confidence in policies; second, confidence in the stock market’s incremental funds; third, and the pessimistic expectations of the capital market. Zhang Xia also mentioned that the press conference was merely a policy preview, and as future policy documents are released, they will form continuous stimulation for the market.


From experience, the market’s understanding of policies is gradual, meaning that in the initial phase of policy introduction, driven by emotions, many policy details are overlooked. These policy details are often discovered by the market over time and evolve into investment opportunities. Therefore, as policy documents are released and more policy details are unearthed and recognized by the market, the market’s risk preference will continue to improve.


One of the key points: promoting medium and long-term capital into the market. In terms of medium and long-term capital entering the market, the third plenary session of the 20th Central Committee of the Party proposed to improve the capital market function that coordinates investment and financing, and to support long-term capital entering the market. Relevant parties have been calling for and promoting long-term and value investing.


Wu Qing, Chairman of the China Securities Regulatory Commission, mentioned that ‘Guiding Opinions on Promoting Medium and Long-Term Capital into the Market’ will be issued soon, with the goal of increasing the scale of long-term capital entering the market, extending investment periods, and improving investment returns. The macro research team at Galaxy Securities mentioned that the focus of medium and long-term capital entering the market is to develop equity public funds, improve the institutional environment for ‘long money long investment’, and continuously improve the capital market ecosystem in three aspects.


First, vigorously develop equity public funds, emphasize investor return orientation, and promote fund companies to optimize product structure and service capabilities to meet the investment needs of the public and promote the realization of long-term returns. The successful fundraising of the newly issued CSI A500 ETF shows the market’s demand for high-quality fund products, and future innovations in broad-based ETF and small and medium-sized plate ETF products will further enhance market diversity and support the development of national strategies and new quality production forces.


In addition, steadily reducing the comprehensive fee rate will directly ease the burden on investors and enhance investment returns. Secondly, improving the institutional environment for “long-term investment of long-term funds” will create a more inclusive regulatory environment for the equity investment of medium- and long-term funds, promote the long-term value investment of insurance funds, and help stabilize the source of funds in the capital market. The positive interaction between this institutional arrangement and the multi-level old-age security system will encourage pension funds to make differentiated investments, thereby enhancing the long-term resilience of the capital market.


Finally, continuously improving the capital market ecosystem, by enhancing the quality of listed companies, strengthening the governance participation of institutional investors, and cracking down severely on illegal and irregular behaviors, can effectively create a favorable market environment to attract medium- and long-term funds. The strategy research team of Soochow Securities believes that against the backdrop of the current adjustment of the domestic interest rate center, combined with the internal and external economic policy environment, and considering that the valuation of A shares is still at a historically low level, it is an opportune time for medium- and long-term funds to enter the market.


From the functions of medium- and long-term funds, first, the current stock market needs to support the independent research and development of core technologies and help solve the “bottleneck” problems. Second, the entry of medium- and long-term funds is conducive to the stability of the market environment. Third, the booming development of the capital market will be the source of the wealth effect of residents’ assets in the new stage, which helps boost residents’ consumption confidence.


In terms of potential allocation space, equity public funds are expected to reduce fees and benefit investors. The proportion of medium- and long-term funds such as pension funds and bank wealth management funds allocated to the stock market is still relatively low, indicating potential room for improvement in the allocation to the stock market.



The research team of Donghai Securities believes that in the future, the regulatory inclusiveness for the equity investment of medium- and long-term funds is expected to continue to increase, and the institutional environment for “long-term investment of long-term funds” will be gradually improved to further optimize the market capital structure and enhance the attractiveness of capital market investment.


In addition, in light of the statement by the central bank governor Pan Gongsheng at the press conference that “the establishment of a stabilization fund is under study”, the team believes that the establishment of a stabilization fund is likely to be put on the agenda. It can not only smooth out excessive market fluctuations but also boost market confidence. At the same time, increasing the entry of medium- and long-term funds, combined with the continuously improving quality of listed companies, the enhancement of the internal stability of the capital market is worthy of expectation.



Second Focus: Encouraging Stock Repurchases


At the press conference held by the State Council Information Office, the central bank announced the creation of a structural monetary policy tool to support the capital market, aiming to enhance the stock increase capabilities of financial institutions and support listed companies to repurchase and increase their holdings of stocks, which also demonstrates the importance attached to the stable development of the capital market.


In this regard, Caitong Securities believes that eligible securities, fund, and insurance companies, which will be determined by the China Securities Regulatory Commission and the National Financial Regulatory Administration according to certain rules, can use assets such as the bonds, stock ETFs, and constituent stocks of the CSI 300 they hold as collateral to exchange for highly liquid assets such as national bonds and central bank bills from the central bank.


This will greatly enhance the fund-raising capabilities and stock increase capabilities of relevant institutions.



Funds obtained through this policy can only be used for investment in the stock market.


Regarding stock buybacks and increased refinancing loans, the Caitong Securities research team stated that the initial quota is 300 billion yuan. If this tool is used effectively, there could be a second and third 300 billion yuan, but everything will depend on the subsequent market conditions for further assessment.


In addition, this policy applies to different ownership structures of listed companies, including state-owned enterprises, private enterprises, and mixed-ownership enterprises.


The Donghai Securities research team indicated that the creation of a special refinancing loan for stock buybacks and increased holdings can boost investor confidence.


Compared horizontally with current market loan products, this product is priced with absolute competitiveness and appeal. Listed companies and major shareholders can effectively reduce the capital costs for buybacks and increased holdings, ensuring the flexibility and capital strength for business operations, while also boosting investor confidence and promoting a virtuous cycle in the capital market.


Wanhe Securities Research Institute believes that the first two policies of the central bank mainly pass through credit channels, while the third policy, which is the first to create a structural monetary policy tool to support the capital market, has opened up a channel for the central bank to inject liquidity into the capital market. The 500 billion ‘swap facility’ not only provides financial institutions with a way to leverage but also implies the central bank’s recognition of the medium and long-term configuration value of assets such as the CSI 300 at the current position.


The 300 billion ‘buyback and increased holding refinancing loan’ is used for major shareholders of listed companies to repurchase or increase their holdings, with an interest rate as low as 2.25%. In theory, as long as the return on equity (ROE) is higher than this level, listed companies have the motivation to repurchase loans. Overall, it helps to increase the enthusiasm of listed companies to repurchase shares and improve the liquidity level of the stock market.


Moreover, according to President Pan, the aforementioned 500 billion and 300 billion are only the initial phases.


The Huafu Securities macro research team believes that the stock buyback refinancing loan tool plays a positive role in maintaining the stability of the capital market and boosting investor confidence.


Dividend buybacks are important not only because they are a direct source of stock investment returns but also because they can convey positive signals to the market that the company’s profits are stable or its value is underestimated. Buybacks are also beneficial to the stock price performance in the capital market.


In recent years, the emphasis of A-share listed companies on dividends has significantly increased, but compared to dividends, the enthusiasm of A-share listed companies to implement stock buybacks still has a lot of room for improvement. The current scale of buybacks by A-share listed companies is far from that of the US stock market.


The creation of the stock buyback refinancing loan tool is expected to promote listed companies to increase their enthusiasm for reasonable buybacks, which can not only effectively enhance the sense of gain for investors but also help listed companies with market value management, which is conducive to boosting investor confidence and promoting the stable operation of the capital market.


In the current market environment, M&A and restructuring of listed companies are also a focal point of attention. At this press conference held by the State Council Information Office, Chairman Wu Qing revealed that the China Securities Regulatory Commission (CSRC) will take multifaceted measures to invigorate the M&A market. Efforts will be made to continuously improve the regulatory details in related fields and effectively enhance the inherent stability of the capital market, signaling a better stimulation of the efficiency and vitality of M&A and restructuring in the capital market.


The macro research team of Galaxy Securities mentioned that supporting listed companies to upgrade to new quality productive forces will guide resource elements to gather towards strategic emerging industries and future industries. Through M&A and restructuring, especially cross-industry integration and the acquisition of unprofitable assets, listed companies can accelerate technological innovation and industrial transformation, enhancing overall competitiveness.


Encouraging industrial integration will improve the efficiency of resource allocation, especially in the current situation where some industries are ‘large but not strong’. By simplifying the review process and supporting the rational restructuring of traditional industries, a higher degree of industrial concentration can be achieved, thereby promoting the optimization and upgrading of the industry.


In addition, further increasing regulatory tolerance will help create a more relaxed market environment. The CSRC will adopt flexible regulatory strategies for matters such as restructuring valuation and performance commitments, based on market laws and actual conditions, to promote effective resource allocation in the market. Lastly, improving the transaction efficiency of the restructuring market will significantly enhance the activity of the capital market.


By enriching the use of payment tools and simplifying the review process, listed companies will be able to restructure more flexibly and optimize the efficiency of fund use. Furthermore, strengthening the service capabilities of intermediary institutions will help increase the professionalism and success rate of M&A and restructuring. The strategy research team of East Wu Securities believes that with the accelerated promotion of China’s economic structural transformation and upgrading, some industries are gradually maturing, the pace of capital market level IPO counter-cyclical adjustments has slowed down, coupled with tight overseas liquidity and weakened investment willingness of dollar funds, the valuations of primary and secondary markets are under pressure, and the importance of market-oriented reform of M&A and restructuring has significantly increased.


From a focal point perspective, on one hand, actively supporting M&A and restructuring of technology companies in the direction of new quality productive forces is conducive to industrial collaborative innovation and development; on the other hand, the policy promotes the quality and efficiency of M&A and restructuring by weakening profitability requirements, ‘loosening’ payment methods and review processes, and increasing valuation tolerance.


Sun Jinjue, Vice President and Director of the Research Institute of Kaiyuan Securities, believes that the ‘Six M&A Measures’ help better play the role of the market in optimizing resource allocation. On one hand, the ‘Six M&A Measures’ adhere to the market-oriented direction, further increasing regulatory tolerance, thereby better playing the role of the market in optimizing resource allocation.



As rational cross-industry mergers and acquisitions (M&A) and the successful acquisition of unprofitable assets for strengthening and reinforcing supply chains increase, listed companies are expected to further transform and upgrade towards new qualitative productive forces. On the other hand, the ‘M&A Six Principles’ adhere to respecting economic and innovation laws, further optimizing payment mechanisms and review procedures, thereby enhancing the flexibility and convenience of M&A transactions.


Since 2024, the review speed of M&A projects has significantly accelerated. As of September 24, 2024, the average time from acceptance to approval of new projects accepted by the Shanghai Stock Exchange was 64 days, a substantial reduction from the 122 days of the entire year of 2023. The future improvement in review efficiency is expected to gradually warm up the M&A market.



The fourth key point: Guiding listed companies to manage market value. The new ‘Nine National Articles’ issued in April this year clearly demanded that listed companies enhance investment value and strengthen market value management. At the recent State Council Information Office press conference, Chairman Wu Qing stated that opinions on market value management guidance will be publicly solicited soon.


Concurrently, in collaboration with relevant ministries, a guidance for listed companies’ market value management has been developed. It requires listed companies to legally manage market value, mainly including five aspects: valuing investor protection and returns, actively using market value management tools to enhance investment value, establishing a regular repurchase mechanism, formulating value enhancement plans for long-term net loss companies, and major index constituent companies formulating market value management systems.




Major securities research teams have also provided detailed interpretations. Zhang Xia, Chief Strategy Analyst at China Merchants Securities, believes that from a policy design perspective, the market value management guidance clearly requires major index constituent companies to take responsibility and formulate market value management systems, combined with re-lending to address the concerns about funds for repurchases and increases. In the future, major index constituent stocks, such as the CSI 300 (and potentially the China Securities A-Share 500 in the future), will have limited downside risk and continuously enhance investment value.


The macro research team at Huafu Securities pointed out that guiding listed companies to manage market value not only effectively promotes the improvement of the quality of listed companies but also increases investor returns, which plays an important role in boosting investor confidence. The core of market value management lies in enhancing the intrinsic value of the company. Effective market value management requires listed companies to improve their operational management level, profitability, and core competitiveness to build a solid foundation.


This helps to enhance the sustainable development capabilities of listed companies and is also conducive to improving their financing capabilities and risk resistance. For investors, listed companies maintaining stock price stability and reasonable operation through market management, realizing the investment realization of the company’s actual value, helps to protect shareholder rights and enhance investor confidence in the company.




Guiding listed companies to manage their market value and improve related system construction is of great significance for enhancing the stability of the capital market and promoting high-quality development of the capital market. According to the research team of Donghai Securities, under the guidance of policies, the return on investment for investors has significantly increased, and the State-owned Assets Supervision and Administration Commission (SASAC) is also increasing the assessment of market value management for central enterprise listed companies according to the ‘one enterprise, one policy’ approach.


Donghai Securities believes that after the experience becomes mature, it is expected to be promoted to various levels, which can not only help enterprises convey confidence, stabilize expectations, and enhance the sense of gain for investors, but also help to improve the stability and attractiveness of the entire capital market.



Moreover, although increasing market value is the ultimate goal, the process of market value management is both a test of the company’s own development strategy and execution ability, and a reshaping of the company’s image and exploration of its intrinsic value, which may to some extent optimize the corporate governance system, promote the benign improvement of business operations, and thereby achieve value enhancement. The macro research team of Galaxy Securities believes that this series of measures will promote the healthy development of the capital market and ensure that listed companies follow compliance principles in the process of market value management, avoiding illegal acts such as market manipulation and insider trading, thus maintaining market fairness and stability.


The fifth key point is that the financial support for the real economy is continuously strengthening. In terms of serving the real economy, the support of monetary policy is continuously increasing, and the policy content involving the real estate direction is relatively more, including the reduction of existing mortgage interest rates, unification of the down payment ratio for the first and second sets, the increase of re-lending for affordable housing, and the extension of existing policies.


These have a positive supporting role in stabilizing the real estate market and supporting the high-quality development of the real economy. The Donghai research team believes that, overall, the drag of the real estate downturn is still relatively large, and this policy boosts real estate expectations from multiple aspects, which may further alleviate the pressure on real estate sales and investment.



In addition, policies under study include re-lending support for enterprises to acquire land from real estate companies, market-based mortgage pricing, and inter-bank mortgage transfers. In the short term, the most likely policy to be implemented is the policy on land acquisition, and de-stocking is the core policy direction for real estate. Improving the mortgage pricing mechanism and inter-bank mortgage transfers reflect the development direction of future interest rate pricing marketization.


Wanhe Securities Research Institute also provides a viewpoint that the real estate market is still deeply caught in a negative feedback loop, which is still the main crux of China’s economy at present, and a strong buying force is needed to reverse the downturn in the housing market. The re-lending interest rate for affordable housing is 1.75%, and there is still a possibility of reduction in the future.


According to data from China Real Estate Network, the rental return rates in the first, second, and third and fourth-tier cities in the first half of 2024 are 1.79%, 1.92%, and 2.46%, respectively. Under good operation, the returns from local state-owned enterprises acquiring commercial housing for rent can already cover the capital costs.



However, the scale of 300 billion is relatively small, and the actual effect remains to be seen. The strategic research team of Soochow Securities believes that this round of interest rate cut slightly exceeded market expectations in terms of magnitude. Against the backdrop of insufficient effective demand and still weak domestic demand momentum in China at present, with the alleviation of the exchange rate constraints after the Fed’s interest rate cut, the interest rate cut is conducive to lowering the domestic real interest rate, reducing the actual financing cost, and stimulating the vitality of the real economy.


The reduction of the reserve requirement ratio is expected to release long-term liquidity, promote credit expansion, and relieve the pressure on the bank’s net interest margin to a certain extent.



From the comprehensive research and interpretation of securities firms, this combination of policies, like multiple arrows being launched simultaneously, fully reflects the central bank’s policy intentions of “stabilizing growth, the property market, and the stock market”. The direct effect on stabilizing growth and the property market may be limited in the short term, but its effect on stimulating the vitality of the capital market, improving market expectations, and boosting confidence is immediate.


Looking ahead, to truly get out of the current predicament of insufficient domestic demand and low prices, improving expectations may only be the first step. It is still necessary for fiscal policy to play the role of the “visible hand”, provide incremental demand, and start a new cycle centered on the expansion of consumer demand based on the growth of residents’ wealth. It is expected that in the next step, a relatively large-scale fiscal stimulus may be on the way.



Leave a Comment

Your email address will not be published. Required fields are marked *