China tries to halt stock market rout by boosting lending and wooing foreign investors

China has vowed to pump more money into the economy and further open its $64 trillion financial industry to international investors, as Beijing scrambles to restore confidence following a massive stock market rout.

The promises from top officials come after a sell-off in Chinese stocks intensified this week. Hong Kong’s Hang Seng Index has fallen by 6.7% so far this year, while the Shanghai Composite and Shenzhen Component indexes are down 5% and 7.7% respectively.

Now, Beijing is trying hard to restore confidence. On Wednesday, Li Yunze, director of the recently-established National Administration of Financial Regulation (NAFR), said that China’s economic fundamentals are stable and promising in the long run, despite short-term challenges.

“The Chinese economy will surely move forward steadily while overcoming difficulties and continue to provide strong impetus for the global economy,” China’s top financial regulator said during a speech to global financial and business leaders in Hong Kong.

Hours later, Pan Gongsheng, the governor of the People’s Bank of China, said the reserve requirement ratio, which determines the amount of cash that banks must hold as reserves, will be cut on February 5. The reduction will provide one trillion yuan ($141 billion) in long-term liquidity to support economic growth, he added.

Analysts from Goldman Sachs said on Tuesday investors are concerned not only about China’s economic downturn, but also about its policy uncertainties, as its commitment to market-oriented reforms has been called into question.

Li on Wednesday tried to provide reassurance.

“As for the next step, we will study a number of financial opening-up measures and support more international institutions to operate and expand in China,” he said.

“In the future, the policy of China’s financial industry to make greater efforts to attract and utilize foreign investment will not change, the protection of the legitimate rights and interests of foreign investment will not change, the direction of providing a better business environment for foreign investment will not change, and the door of the financial industry will open wider and wider,”  he added.

About $6 trillion, equivalent to roughly twice Britain’s annual economic output, has been wiped off the market value of Chinese and Hong Kong stocks since they peaked in February 2021. The astonishing losses, reminiscent of the last Chinese stock market crash of 2015-2016, highlight a crisis of confidence among investors concerned about the country’s future.

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