China’s central bank and stock market regulator have moved to shore up capital markets, announcing new mechanisms to bolster bond market liquidity in the event of a crisis and authorising new exchange traded funds (ETFs) to add stability to stock markets.

People’s Bank of China (PBOC) governor Pan Gongsheng put a firewall in place to backstop the bond market, announcing the launch of a liquidity facility to help non-bank financial institutions such as securities brokers and mutual funds better withstand a fire sale.

Wu Qing, chairman of the China Securities Regulatory Commission, moved to channel billions of yuan of additional capital into the country’s A-share market with his announcement of approvals for 18 new actively managed ETFs. Fund managers were expected to begin announcing their offerings on Tuesday, with sales starting on Friday and each ETF potentially raising some 2 billion yuan (US$300 million), Chinese media reported. Both men made the announcements in speeches to the Financial Street Forum in Beijing on Monday.

Pan also said the central bank would provide foreign-funded onshore banks with broader access to short-term collateralised liquidity. Wu pledged to crack down on market irregularities amid rising global financial volatility, encouraged listed firms to buy back shares and outlined four measures the commission would soon introduce to strengthen regulation, including the launch of a new centre to monitor risks in the fund industry.

The central bank would ramp up financial support for the country’s three primary international science and technology innovation hubs: the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Greater Bay Area in Guangdong, Hong Kong and Macau – Pan told the Beijing gathering. It would work with 10 government departments to build a financial services system that better supports the core functions and international positioning of the three hubs, he said.

Pan Gongsheng told the Beijing forum the PBOC was considering switching its main policy rate to the overnight reverse repurchase rate, replacing the seven-day reverse repo rate. The central bank governor said the move was part of efforts to refine its control of short-term interest rates. The approach would give the PBOC more control over liquidity conditions and bring its policy framework in line with those of other major central banks.

The State Administration of Foreign Exchange plans to roll out measures to help Chinese firms better engage in international cooperation and competition, its head, Zhu Hexin, told the Beijing forum on Monday. The measures include advancing the opening-up of the foreign exchange market and expanding a pilot programme allowing securities firms to conduct foreign exchange settlement and sales. Ding Xiangqun, the head of the National Financial Regulatory Administration, said the regulator would step up efforts to upgrade the country’s banking and insurance sectors and welcome more foreign institutions to expand their business in China.

The PBOC would closely monitor the impact of artificial intelligence (AI) on the economy as well as the financial markets and monetary policy, Pan said. “AI’s impact varies across countries, regions and industries. While it has yet to have a significant impact on overall employment, it has begun to change the structure of jobs,” he said. The central bank will explore using AI in areas from monetary policy analysis to anti-money-laundering efforts. The US and China should put aside their mutual distrust in order to tackle the risks posed by AI, Robert Rubin, US Treasury Secretary under President Bill Clinton, told the Bund Summit in Shanghai on Monday, speaking via video link.

Rate anchor: China Galaxy Securities said in a research report that the overnight repo rate will become an important pricing benchmark, serving as an interest rate anchor primarily in two areas going forward: first, as the pricing benchmark for floating-rate loans taken out by companies with strong financial positions; and second, as the anchor for pricing bonds and financial derivatives … This will help break down the current dual structure of the interest rate market, and clarifying the relative pricing between bond yields and loan rates will be the most critical step. (Jiemian News) ETF innovation: Penghua Fund stated that the introduction of active ETFs represents one of the most significant product innovations in the over 20-year history of China’s ETF market.

It is not merely about moving active funds onto the exchange; rather, it redefines active management within the institutional framework of ETFs. For investors, buying ETFs will no longer be just about choosing an index, but about selecting a strategy and a fund manager. Consequently, competition among fund companies will shift from a race for “index resources” to a contest of “active management capabilities”. (Cailianpress) Effective rate cut: With the rate on new overnight reverse repo transactions set at 1.25 per cent in June, some economists will see the switchover as effectively a rate cut given it’s lower than the current seven-day benchmark.

Prior to the announcement, Huatai Securities analysts led by Zhang Jiqiang wrote that such a shift would “function as a de facto rate cut” … “For next year, the PBOC could potentially deliver part of monetary easing through a change in the main policy rate benchmark rather than a conventional cut in the policy rate,” Xinquan Chen, an economist at Goldman Sachs, said in a note.

Market forces: China’s seen [a] growing “misallocation” of resources, Krishna Srinivasan, the International Monetary Fund’s Asia and Pacific Department director, [said] on the sidelines of the Bund Summit on Monday. That “needs to be corrected”, he said, urging policymakers not to “pick and choose sectors” to support, but to allow capital to work according to market forces. It’s a tough ask as China has doubled down on technological development while struggling to transition away from real estate, which once accounted for more than one-fifth of the economy. (CNBC) Value investing: “No matter how the market changes, the core of long-term value investing has never changed: respect the cycle, respect volatility, stay anchored in the true value of the business, and look through the noise of market sentiment. Cycles always turn – and long-termism is precisely the tool that separates signal from noise through the volatility,” Orient Securities Asset Management said. (China Securities Journal) China’s regulators are sticking with an incremental approach to support the country’s capital markets, perhaps to the chagrin of investors.

The central bank’s new mechanisms to bolster market liquidity during a potential bond crisis and the stock market watchdog’s launch of active exchange traded funds (ETFs) are further evidence they are choosing to tinker rather than intervene.

The new bond liquidity tool would target non-bank financial institutions, establishing a mechanism to stabilise the market when, for example, asset management institutions faced collective liquidity risks or a “negative cycle” of redemptions and sell-offs, People’s Bank of China governor Pan Gongsheng told a Beijing financial forum.

The move is more of a rainy-day mechanism as the country’s bond market is not currently in crisis. Yields on Chinese government bonds are at multi-year lows as prices have climbed this year. The lower borrowing costs make them attractive for issuers but less so for investors. The yield on China’s benchmark 10-year bond was as low as 1.62 per cent on Tuesday, the lowest since February 2025. That contrasts with the United States, where a bond market rout has pushed the yield on the 10-year US Treasury note above 5 per cent.

Meanwhile, the China Securities Regulatory Commission (CSRC) is hoping that launching the Chinese markets’ first actively managed ETFs will offer more opportunities for investors to seek higher returns – and channel billions of yuan into the flagging A-share market.

The CSRC approved 18 ETFs of up to 2 billion yuan each to be actively managed by domestic fund managers. Of some 1,700 ETFs currently authorised in China, more than 97 per cent are passively managed, meaning they are automated and set to track an index like Shanghai’s composite CSI 300. They see low turnover, but have low management fees and aim to match the market returns.

An actively traded fund seeks to beat the market, has human managers to select stocks and sees high turnover, but has higher management fees.

The latest changes are part of a slow drip of regulatory measures to help make markets more liquid and stable amid a global sell-off of stocks related to the artificial intelligence buildout.

Two years ago, the central bank moved to arrest flagging growth with a “big bang” cut in interest rates and bank reserve ratios to inject money for investment to kick-start the economy. It made another, smaller adjustment in May 2025 but has avoided major stimulus measures since.

One reason for not taking drastic action is that the economy is not setting off warning bells. Gross domestic product growth for the third quarter of this year came in at 4.5 per cent, the lower end of the official target range of 4.5 per cent to 5 per cent. That has eased the pressure on authorities to heed the calls of some economists for another “big bang” to support growth and allows them to keep their powder dry for when they need it.

The problem for investors is that China’s stock gauges have moved into bear market territory, having fallen by 20 per cent from their most recent peaks. Technology shares have come under pressure amid rising global concern over the financing and capital costs of the AI buildout.

In the US, the tech-heavy Nasdaq fell by 4.5 per cent last week, its worst performance since June. In China, shares in memory-chip maker Changxin Memory Technology Corporation (CXMT) have dropped sharply after surging by 466 per cent on its July debut. CXMT replaced AI chip designer Cambricon Technologies Corp as the country’s most valuable listed company on the Shanghai Star Market, but now its shares are trading at 35 per cent off their August peak. Similarly, Cambricon stock is 42 per cent down from its June peak.

The boom in initial public offerings attracted strong retail investor interest in the first half of the year but has shown signs of petering out. Fundraising in Hong Kong hit a record US$48 billion between January and the end of September, but about 74 per cent of IPOs launched in the third quarter are trading below their offer prices, making investors more gun shy.

This month in Hong Kong, the IPO of Shenzhen Transsion, the biggest seller of cellphones in Africa, was just 3.5 times oversubscribed, far short of the 212 times for CXMT’s listing.

The bear market in Chinese stocks and waning enthusiasm for IPOs leave few alternatives for domestic investors seeking a decent return. China’s property market is mired in a five-year slump that has made people hold on to their wallets, thwarting the government as it tries to stimulate consumption. The returns from investing in money markets, and from savings accounts, are meagre.

Shares fell on Tuesday following the speeches by the central bank governor and head of the stock markets watchdog, with the CSI 300 closing down 0.5 per cent. It may take more than the launch of some actively managed ETFs to stir investor interest.