China expands swap and relending tools to steady the stock market

What regulators announced

China's central bank said it will run swap operations for brokers, fund managers and insurers as conditions warrant, pull in more participants, and trim the fees charged for those swaps. Alongside that, it will lower the interest rate on its relending program tied to share repurchases and stake building to 1% from 1.25%, make that facility a standing feature, and press banks to extend more credit through it.

Both tools debuted in October 2024. The relending channel supplies cheap central bank funding that banks use to make loans backing listed companies and major shareholders who are buying back stock or adding to stakes.

The next steps and market mechanics

According to the securities regulator, the next swap tranche is expected to start shortly, and 31 approved brokerages and fund managers are together applying for quotas exceeding 100 billion yuan, or about $15 billion. The latest tally from the central bank shows swaps outstanding at 105 billion yuan, while roughly 440 billion yuan in loans tied to buybacks and stake-raising have been signed and over 280 billion yuan has already been paid out.

A meeting on the measures drew 23 securities firms and funds and 26 banks. Speakers included representatives from China International Capital Corp., Guotai Haitong Securities Co., Citic Securities Co., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and China Citic Bank Corp.

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Rules eased and coverage widened

The CSRC plans to broaden who can tap the relending program, including encouraging more companies that are major components of key indexes and more leading technology companies to participate. It also plans to ease buyback restrictions, allowing repurchases when shares fall under the IPO price, and mandating that firms holding surplus funds from capital raises carry out buybacks once market-support thresholds are triggered.

The regulator will study adjustments to margin financing - borrowing to buy stocks - to moderately raise financing capacity and help liquidity.

Why it matters for your portfolio

Beijing is leaning into a "slow bull" approach to entice household savings toward equities, but shaky market action has complicated that push, according to Gavekal Dragonomics. "The government wants to be seen as supportive, or investor confidence could decline even further," wrote Thomas Gatley and Xiaoxi Zhang, noting households remain cautious. The CSI 300 dropped 8.5% in October - its worst monthly fall in more than 10 years - and notched an unprecedented 12-week losing streak ending Friday.

In plain English: cheaper, permanent relending, more participants in the swap tool, looser buyback allowances and potential tweaks to margin financing all target one thing - steadier liquidity and incremental support for shares. Watch how quickly the coming swap tranche is allocated and how broad the relending coverage becomes, since the scale and speed will shape how much lift reaches Chinese equities.

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