China Intervenes in Stock and Forex Market to Prevent Sharp Drops, Fearing a Repeat of the 2015 Stock Market Crash.

As the impact of the U.S. tariff storm hit, the Chinese stock market took a sharp downturn on Monday (April 7th). The Shanghai Composite Index fell below the 3100-point mark, marking the largest single-day drop in five years. The Hang Seng Index plummeted by 13.22%, the largest drop since 1997. Additionally, the onshore Renminbi fell below 7.31, hitting a new low in over two months.

A-share market indices experienced significant declines on Monday, with the Shanghai, Shenzhen, and ChiNext indexes plunging by 7.34%, 9.66%, and 12.5% respectively. The Shanghai Composite Index closed at 3,096.58 points, falling by 245.43 points, or 7.34%. The Shenzhen Component Index dropped by 1,001.23 points to 9,364.5, a decrease of 9.66%. The ChiNext Index also saw a sharp decline of 258.2 points, or 12.5%. The total trading volume in the Shanghai and Shenzhen markets was around 15.88 trillion yuan, an increase of 450.179 billion yuan from the previous trading day. By the time the market closed, only 106 stocks were up, while 5,284 stocks declined.

On April 2nd, President Trump announced a 34% tariff increase on Chinese goods, prompting China to retaliate with equivalent measures, scheduled to take effect on Thursday (April 10th).

Minutes before the closing on Monday, China’s state media, under the pseudonym of “authoritative figures,” announced that the Central Huijin Investment Company is actively conducting market stabilizing operations.

In the final 15 minutes before closing, the Central Huijin Investment Company directly announced its strong confidence in the future development of China’s capital market. They expressed their belief in the current value of A-shares and disclosed the increased holdings of Exchange Traded Funds (ETFs), affirming their commitment to maintaining the stability of the capital market operation.

The Central Huijin Investment Company, a wholly-owned subsidiary of China Investment Limited Liability Company and a state-owned sole proprietorship established with capital from the State Council, is commonly referred to as the “financial state asset commission.” As one of the state-supported “national team” investors, their mission is to stabilize the market during turbulent times.

Amid the plunge in A-shares, the Renminbi also hit a new low against the U.S. dollar in over two months. In onshore trading on Monday (April 7th), the Renminbi against the U.S. dollar dropped to 7.3165 points, marking its weakest level since January 20. The offshore Renminbi against the U.S. dollar stood at 7.3255, a decrease of about 0.41%.

According to Reuters, Khoon Goh, the chief of Asian research at ANZ Bank, predicts that the People’s Bank of China will allow the Renminbi’s mid-point to weaken further, but in a controlled manner rather than through a significant devaluation all at once. Ken Cheung, the chief Asia foreign exchange strategist at Mizuho Bank, indicated that the Monday official mid-point setting shows that the central bank will not offset the impact of tariff hikes through substantial currency devaluation.

During Trump’s first presidential term, following a series of reciprocal tariff announcements from March 2018 to May 2020, the Renminbi depreciated by over 12% against the U.S. dollar.

Looking back at the Chinese market’s response to the 2015 stock market crash and the monetary policy effects in the fourth quarter of 2024, short-term market stimulation measures may offer a boost but are unlikely to be sustainable.

In September 2024 to the end of the year, the People’s Bank of China introduced and improved two structural monetary policy tools, along with lowering reserve requirements and interest rates to boost the stock market. One tool was the convenience swap between securities, funds, and insurance companies. Bond holdings, stock ETFs, and Shanghai and Shenzhen 300 component shares could be used as collateral to exchange for high liquidity assets such as national bonds and central bank bills, enabling funds acquired through trading these assets to be invested solely in the stock market. The second tool involved stock buybacks and reloans. 21 national financial institutions were authorized to provide loans to eligible listed companies and major shareholders.

Prior to the implementation of tariffs, funds had already quietly positioned themselves. Wind data shows that the Huatai Bairui Shanghai and Shenzhen 300 ETF saw net inflows over all four trading days the previous week, accumulating inflows totaling 2.375 billion yuan.

According to the disclosed 2024 fund annual report, by the end of 2024, the Central Huijin Investment Company held 21 ETFs worth a total market value of 661.697 billion yuan, a nearly 90 billion yuan increase from the mid-year holdings; the Central Huijin Asset Management Limited Liability Company held 15 ETFs with an end-of-period market value reaching 382.184 billion yuan, a growth of 287.976 billion yuan from the mid-year value.

While the recent turmoil was triggered by Trump’s tariffs, all – whether it’s the stock market, bond market, or forex market – ultimately rely on economic fundamentals for support, with stimulus policies offering short-term effects that are not sustainable in the long run.

Chinese issues expert Wang He previously expressed to Dajiyuan that the foundation of the Chinese economy is shaking and nearing collapse.

Currently, China’s economy is stuck in a long-term deflationary cycle, with declining corporate profits, weak consumer demand, severe domestic consumption deficiencies, and more than 60% of American tariffs on Chinese goods causing a significant blow to foreign trade exports. The real estate sector is persistently sluggish, local debts are severely burdening regional economies, and the nation faces a series of social and economic problems such as private business closures, foreign company withdrawals, substantial investment contractions, declining birth rates, mass unemployment, and government fiscal bloodletting.

Institute for Assistance to China’s commentary on the Chinese stock market pointed out that the chronic issues plaguing the Chinese stock market, much like the broader concerns in China today, are rooted in the lack of rule of law, freedom, and human rights. The CCP is keen on stimulating and creating false bubbles through power methods, enticing and deceiving the public into investing money to save the market, inevitably leading to compounding disasters.

Stay tuned for more updates on this developing story.