FX168 Financial News Agency (Asia-Pacific) reports on Friday, October 18th that the People's Bank of China announced the establishment of share buyback and shareholding refinancing to support the stable operation of the capital markets. The People's Bank of China officially launched the Securities, Funds, and Insurance Companies Interchange Facility (SFISF) operation, with 20 securities and fund companies approved to participate. The initial application quota has exceeded 200 billion yuan. The funds obtained through this tool can only be invested in the capital markets, specifically in stocks, and stock ETFs.
On Friday, the People's Bank of China, together with the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission, issued a notice regarding the establishment of share buyback and shareholding refinancing to incentivize financial institutions to provide loans to eligible listed companies and major shareholders, supporting their share buybacks and shareholdings.
(Source: People's Bank of China website)
The initial quota for refinancing is 300 billion yuan, with an annual interest rate of 1.75%, a term of 1 year, extendable based on the situation. The share buyback and shareholding refinancing policy applies to companies of different ownership structures. 21 national financial institutions, including China Development Bank, policy banks, state-owned commercial banks, China Postal Savings Bank, and joint-stock commercial banks, provide loans to support listed companies' share buybacks and shareholdings as per policy regulations.
These 21 financial institutions autonomously decide whether to issue loans, reasonably determine loan conditions, bear the risk themselves, and generally keep loan interest rates below 2.25%. The loan funds are "specialized and closed for operation". For loans issued by these 21 financial institutions for share buyback and shareholding, if they do not comply with relevant regulatory provisions such as "credit funds must not flow into the stock market," they are exempt from enforcing those regulations; other credit funds are subject to current regulatory provisions.
Share buyback and shareholding refinancing is distributed quarterly. As of now, 21 financial institutions can lend to eligible listed companies and major shareholders for share buybacks and shareholdings. After issuing the loan, in the first month of the next quarter, they can apply for refinancing from the People's Bank of China. For eligible loans, the People's Bank of China provides refinancing to financial institutions for 100% of the loan principal.
By the end of Friday's Asian session, the three major Chinese stock indices continued to rise, with the chinext price index up over 3%, the Shenzhen Component Index up 1.8%, and the Shanghai Composite Index up 0.9%.
China's Central Bank Governor Pan Gongsheng said at the 2024 Financial Street Forum Annual Meeting on the 18th that further improving the monetary policy framework, in terms of target system, will consider rational price increase as an important factor.
He pointed out that the goals of macroeconomic regulation focus on the short term, addressing issues related to economic growth and operation, while the objectives of reform and economic structural adjustments focus on medium to long-term high-quality and sustainable development.
Pan Gongsheng emphasized that the People's Bank of China's share buyback and increased lending have specific directions, and it is essential that credit funds do not enter the stock market in violation of regulations.
He mentioned that two tools to help stabilize the development of capital markets are completely based on market principles, and the liquidity swap facility does not involve direct funding support from the central bank.
He further indicated that in accordance with the central government's arrangements, the People's Bank of China and other financial regulatory authorities have announced a package of policies to support stable economic growth. They recently held a symposium for financial institutions and urged to accelerate the implementation of relevant policy measures. Regarding reserve requirement and interest rate cuts, on September 27th, the deposit reserve ratio was reduced by 0.5 percentage points. It is expected that before the end of the year, based on market liquidity conditions, there will be further reductions of 0.25-0.5 percentage points in the deposit reserve ratio; the 7-day reverse repo operation rate in the open market was reduced by 0.2 percentage points; the medium-term lending facility rate decreased by 0.3 percentage points. Early Friday morning, commercial banks have announced a reduction in deposit rates, and it is anticipated that the Loan Prime Rate (LPR) announced on the 21st will also decrease by 0.2-0.25 percentage points.
Four real estate financial policies have all been issued, including the adjustment of existing house loan rates, which is a welfare policy determined by the central government. It benefits 50 million households, reducing their annual interest expenses by approximately 150 billion yuan. Two financial instruments supporting the stable development of capital markets have been established by the People's Bank of China, the China Securities Regulatory Commission, and the China Banking and Insurance Regulatory Commission. Cross-market facilitation between securities, funds, and insurance companies has started accepting applications from financial institutions. Policy documents for share buybacks, increased holdings, and special re-lending have been published and put into effect.
Since the implementation of the package policies, both domestically and internationally, positive reviews have been received, which have greatly boosted social confidence and played a good role in promoting stable economic and financial operation, he added.
Li Yunze, Director of the China Banking and Insurance Regulatory Commission, stated at the 2024 Financial Street Forum Annual Meeting that efforts will be made to implement the overall policy to support stable economic growth, accelerate the circulation of funds, optimize the credit management model, and effectively enhance the service capacity for the real economy.
Sheng Laiyun, Deputy Director of the National Bureau of Statistics of China, introduced on Friday at a press conference of the State Council Information Office that overall, China's economy has been running smoothly in the first three quarters, showing steady progress and the continuous manifestation of policy effects, with recent positive changes in major economic indicators. At the same time, it is important to note that the external environment is becoming more complex and severe, and the foundation for the economic recovery still needs to be consolidated. In the next stage, efforts should be made to accelerate the establishment of a new development pattern, strengthen the coordinated efforts of stock and incremental policies, promote the rapid implementation and effectiveness of various policies, consolidate and enhance the momentum of the economic recovery, and strive to achieve the annual economic and social development goals.
