Increasingly apparent state buying in China’s struggling stock market helped drive the benchmark CSI 300 Index up 0.68 per cent on Wednesday morning, but will be insufficient to engineer a durable rally in the world’s second-largest equity market, according to analysts from global investment banks.

“National team” investors – state entities buying exchange-traded funds (ETFs) and other vehicles – poured as much as 170 billion yuan (US$25.5 billion) into the market this month. But such intervention was intended to put a floor under stocks and ward off systemic risk, they argued.

While the market could temporarily stabilise after the intervention by Central Huijin Investment and other state-backed buyers, sustainable gains would depend on the strength of corporate earnings and domestic demand, a weak part of China’s economy, according to Macquarie and Swiss private bank Julius Baer.

China’s state meddling in its onshore stock market accelerated this month after the benchmark CSI 300 Index slipped into a bear market and the chip-heavy Star 50 gauge shed more than 40 per cent of its value from a record high. Goldman Sachs said that the national team probably bought about 170 billion yuan of ETFs tracking key equity gauges in October, while Bank of America estimated such purchases at more than 110 billion yuan.

“The national team’s focus is to stabilise the stock market and help prevent systemic risk,” said Larry Hu, chief China economist at Macquarie. “A sustained market rally still depends on a recovery in domestic demand, which may come once Beijing can no longer rely on exports to drive growth.”Hu said that state stock buying also aligned with Beijing’s “countercyclical” approach, just like its fiscal policy, which is fine-tuned to help achieve the annual growth target while avoiding bazooka-like stimulus packages that would risk overshooting growth.

We see limited motivation for a prolonged intervention campaignPatrick Pan, Bank of America During the euphoric market sentiment until June this year, China’s state buyers could have sold holdings worth 1.5 trillion yuan to rein in rapid gains, but they turned into net buyers again in July after sentiment deteriorated, according to Societe Generale.

Trading in Chinese stocks remains volatile, as sentiment sways between expectations about increased state support and concerns about growth prospects and an unwinding of crowded AI bets.

Spikes in trading volumes for the biggest ETFs tied to the CSI 300 and the Star 50 gauge pointed to state buying, as these were the key vehicles for state buyers to intervene. Unlike an earlier bout of interference in 2015 and 2024, the latest buying focused more on technology stocks, a critical part of Beijing’s tech self-reliance drive.

ETFs tracking the Star 50 gauge and the ChiNext index of tech start-ups trading in Shenzhen attracted about 50 billion yuan of fresh inflows this month, according to Bank of America.

While stocks historically tended to trough one or three months after state interventions, a meaningful rebound would not arrive until early next year, when policymakers would have to ramp up policies to reinvigorate economic growth, said Richard Tang, an analyst at Julius Baer. He recommended high-dividend stocks for now as a hedge against market volatility.

“The latest stabilisation measures appear aimed more at containing downside risks than driving a market reversal,” said Patrick Pan, a strategist at Bank of America. “We see limited motivation for a prolonged intervention campaign, given that [China’s stock] market is not the only casualty of the global AI unwind and indices remain well above the lows seen two to three years ago.”