PBOC says buyback loan demand passes 200bn yuan as it widens market backstop

The small gains seen early on point to the measures calming sentiment instead of setting off a rebound, which fits the scheme's purpose as a backstop. Large companies sitting on plenty of cash and paying high dividend yields — state-owned banks and energy firms among them — stand to gain the most, since they can borrow cheaply to repurchase shares. For the tech and AI stocks that drove October's sell-off, the tool offers little directly, leaving Hong Kong-listed tech exposed to worries about AI earnings. Stabilising Chinese equities give the Australian dollar and iron ore only marginal support, with property and consumption data still the bigger drivers.

The Chinese capital is not purchasing shares directly. What it is doing is making that purchase very inexpensive for companies and their owners — and appetite for the money is rising quickly.

Key points:

• Demand for the PBOC's relending facility for share buybacks and stake increases has passed 200bn yuan, roughly $30bn
• The central bank says it has stepped up the policy in order to keep capital markets stable
• This week the facility rate was lowered to 1% from 1.25%, the tool was made permanent and eligibility was broadened
• A separate asset swap facility worth 100bn yuan, for brokers, fund managers and insurers, started on Tuesday
• Doubts about AI and tech spending pushed the CSI 300 down 8.5% in October, its worst month in a decade
• Shanghai shares moved slightly higher in early trade

The People's Bank of China said on Wednesday that applications for the central bank-backed share buyback loans had passed 200bn yuan, or roughly $30bn, Reuters reported. Officials are redoubling attempts to steady an equity market that has just recorded its worst month in a decade. Mainland shares rose modestly in early trade, the Shanghai Composite gaining about 0.2% to around 3,610 soon after the open.

According to the central bank, it has strengthened the relending policies covering share repurchases and shareholding in order to keep capital markets stable. The statement came after a Monday meeting at which the PBOC, together with financial and securities regulators, sat down with major banks to work out how the scheme could be improved.

How does the mechanism function? Launched in October 2024 with a 300bn yuan quota, the facility is a type of targeted cheap funding. Listed companies borrow from commercial banks to repurchase their own shares, and major shareholders borrow in order to lift their stakes. The PBOC then provides the banks with low-cost funding to cover those loans — that is what relending means. No shares are bought by the central bank itself; what it does is cut the cost for companies and their main owners.

The goal is to place a floor beneath prices. Repurchases shrink the number of shares in circulation and signal that insiders consider current levels good value. Because the loans are cheap, a company whose dividend yield is higher than its borrowing cost can borrow to buy its own stock — turning a falling price into a reason to buy.

This week the authorities loosened the scheme further. On Monday the PBOC lowered the rate it charges banks under the facility to 1% from 1.25%, turned the tool into a permanent part of its policy kit and broadened the pool of eligible companies. A separate asset swap facility of about 100bn yuan was also opened. Through it, brokers, fund managers and insurers can exchange assets for more liquid securities, which they can then use to raise cash for share purchases.

The effort follows a steep sell-off. The CSI 300 gauge of big mainland stocks dropped 8.5% in October and slipped into a bear market on 20 October, hurt by questions over whether Chinese AI and technology companies will recoup their heavy spending. Goldman Sachs puts AI-linked firms at roughly 42% of the market value of Chinese shares listed on the mainland and in Hong Kong.

Such tools come with limits. Repurchases prop up prices without solving the problems dragging on Chinese stocks, among them soft consumption and a prolonged property downturn. Shares bought back but not cancelled may later be sold back into the market, and taking on debt to buy stock pushes up corporate leverage. The scheme performs best as a backstop that slows the selling rather than as a spark for a sustained rally.