Supporting the stable development of the capital market, new structural monetary policy tools are here.
On September 24th, at a press conference held by the State Council Information Office, the central bank governor Pan Gongsheng announced a series of incremental monetary policies.
Notably, this is also the first time the central bank has created structural monetary policy tools to support the capital market.
Among them, first, a special re-lending tool for stock buybacks and increases in holdings has been newly established, aimed at supporting listed companies to repurchase and major shareholders to increase their holdings of stocks, stabilizing the capital market, with an initial quota of 300 billion yuan; second, a swap facility for securities, funds, and insurance companies has been created to maintain the stability of China's capital market and boost investor confidence, with an initial quota of 500 billion yuan.
The creation of special re-lending to stabilize A-shares is in line with the requirements of the 20th Central Committee of the Communist Party of China, which calls for "establishing a long-term mechanism to enhance the inherent stability of the capital market."
Stabilizing the capital market is of great significance for stabilizing market expectations and the macroeconomy.
Recently, the domestic stock market has been in a slump, posing a challenge to achieving the annual economic and social development goals, making it necessary to further maintain the stability of the capital market and consolidate and enhance the upward trend of the economy.
Central bank officials stated that the People's Bank of China has created special re-lending to incentivize and guide banks to provide loans to listed companies and major shareholders, supporting their buybacks and increases in listed company stocks.
This policy applies to listed companies of different ownerships.
The official indicated that the special re-lending is not the central bank directly or indirectly issuing loans to enterprises, but rather through an incentive-compatible mechanism, guiding 21 national banks to issue preferential interest rates to qualified listed companies and major shareholders for buybacks and increases in stock holdings, based on independent decision-making and risk-taking.
After the relevant departments verify and confirm the use of the loan, the People's Bank of China provides re-lending support at 100% of the loan principal.
The newly created special re-lending interest rate is 1.75%, with an initial quota of 300 billion yuan, and the scale can be expanded in the future depending on usage.
"The initial quota is 300 billion yuan, if this tool is used well, as I have also discussed with Chairman Wu Qing, we can have another 300 billion yuan, or even a third 300 billion yuan, it is possible," Pan Gongsheng stated at the press conference.
In fact, the buyback and increase in holdings of listed company stocks by listed companies and major shareholders is a frequent and routine operation in the international market.
The creation of swap facilities is not a direct cash giveaway.
Another tool is the swap facility for securities, funds, and insurance companies, with an initial operation scale of 500 billion yuan, which can be expanded in the future depending on the situation.
It is worth noting that funds obtained through this tool can only be used to invest in the stock market.
It is reported that, drawing on international experience and existing re-lending, central bank bills swap (CBS), and other tools, the People's Bank of China, in consultation with the China Securities Regulatory Commission and the Financial Regulatory General Administration, has created two structural monetary policy tools to support the stable development of the capital market.
"Swap facilities are not a direct cash giveaway and will not expand the scale of the base money," a person close to the central bank told Yicai.
The current "People's Bank of China Law" stipulates that the central bank shall not directly provide loans to non-bank financial institutions.
The swap facility for securities, funds, and insurance companies adopts a "bond-for-bond" approach, which not only improves the financing capacity of non-bank institutions but also does not directly provide funds to non-bank institutions, thus not injecting base money.
The aforementioned person told Yicai that the central bank's creation of newly announced tools aims to stabilize the stock market and boost confidence.
The stock market is a barometer of the macroeconomy, and recently, influenced by multiple factors, the A-share market has been relatively weak, posing a challenge to stabilizing market expectations, boosting the confidence of micro-entities, and achieving annual economic and social development goals.
To support the stable development of the stock market and boost investor confidence, the People's Bank of China has created a new structural monetary policy tool, namely the swap facility for securities, funds, and insurance companies, which fully reflects the strengthening of macroeconomic regulation and the enhancement of macroeconomic policy coordination.
Swap facilities will greatly enhance the institutions' ability to obtain funds and increase their stock holdings.
According to the People's Bank of China's announcement, the swap facility supports qualified securities, funds, and insurance companies to use bonds, stock ETFs, and constituents of the CSI 300 as collateral to exchange for high-liquidity assets such as government bonds and central bank bills from the central bank.
A person close to the central bank said that this move can significantly enhance the convenience of related institutions to obtain funds, and swap financing is limited to investing in the stock market, which is conducive to better leveraging the role of securities, funds, and insurance companies in stabilizing the market.
"As long as this is done well, the first phase of 500 billion yuan, we can also have another 500 billion yuan, or even a third 500 billion yuan, I think it is possible, it is open.
The funds obtained through this tool can only be used to invest in the stock market," Pan Gongsheng stated at the press conference.
In fact, similar swap tools have many successful experiences at home and abroad.
The Federal Reserve introduced the Term Securities Lending Facility (TSLF) during the 2008 financial crisis, allowing primary dealers to use less liquid securities as collateral to borrow more liquid Treasury bonds from the Federal Reserve, facilitating financing in the market and boosting the market.
The People's Bank of China launched the Central Bank Bills Swap (CBS) tool in 2019, allowing primary dealers to exchange bank perpetual bonds for central bank bills from the central bank, improving the liquidity of commercial bank perpetual bonds and playing a good role in helping banks issue perpetual bonds to replenish capital.
