China's Central Bank unveils 500 billion yuan swap facility to boost capital market

Beijing: On Thursday, the People's Bank of China (PBC) announced the launch of a 500 billion yuan ($70.61 billion) swap facility aimed at enhancing liquidity for the nation's capital market. As per reports, this new structural monetary policy tool allows eligible financial institutions to use assets as collateral to secure liquidity, marking a significant step in supporting China's financial stability.

Notably, the facility, named the Securities, Funds, and Insurance Companies Swap Facility (SFISF), enables securities, fund, and insurance companies to swap their holdings of bonds, stock exchange-traded funds (ETFs), and constituent stocks of the CSI 300 Index in exchange for high-liquidity assets like government bonds and central bank bills from the PBC. The central bank aims to provide a healthier and more stable environment for market participants through this innovative measure, according to a statement on the PBC’s website.

Reportedly, initially set at 500 billion yuan, the swap facility may be expanded in response to market needs, the central bank noted. Financial institutions eligible for the facility can begin applying as of Thursday.

PBC Governor Pan Gongsheng stated "We remain open to the possibility of increasing the scale to 1 trillion yuan or more if market conditions warrant,"  He also emphasized that the funds obtained through this facility are to be used solely for investments in the stock market.

This announcement comes as part of broader efforts by the Chinese government to stimulate the economy. Recent measures include monetary stimulus and property market support, which have already begun to bolster market sentiment. The combined turnover of the Shanghai and Shenzhen stock exchanges reached 3.45 trillion yuan on Tuesday, surpassing previous records.

Zheng Shanjie, head of the National Development and Reform Commission, expressed confidence in achieving China's annual economic goals, noting that these measures are crucial for ensuring sustained and healthy economic development.