1. Introduction

2. Stock Market Stimulus in 2008 and 2015

2.1.2008. Market Rescue

During the initial years of the 21st century, the proliferation of subprime mortgages, the inflation of a real estate bubble, and the unchecked expansion of credit default swaps (CDS) contributed to a period of artificial economic boom in the United States (Mazumder & Ahmad, 2010). This facade of prosperity was shattered in 2007 when a crisis originating in the housing market quickly contagion spread to the entire financial sector, resulting in a catastrophic collapse of the US housing market, the insolvency of numerous financial institutions, and dramatic stock market volatility. Between 2008 and 2009, the financial turmoil led to the bankruptcy of over 125 commercial banks, savings banks, and credit unions in the United States (Mazumder & Ahmad, 2010). The crisis in the US triggered a global scramble for capital recovery. Furthermore, the widespread international investment in real estate bonds meant that many countries were implicated in the fallout. As Gamble (2010: 703) noted, "The banking crisis was transformed for many states into a fiscal crisis, which by 2010 had become a sovereign debt crisis."

As the globe's preeminent export-driven economy, China experienced profound repercussions from the crisis. "The United States fell into a sharp contraction in importing from emerging market which had become the largest exporters to the developed world, especially for China. The decline in exports created an initial reduction in production and weakened the domestic economy of China" (Zhao et al., 2019: 170). China's most representative stock index, the SSECI (Shanghai Stock Exchange Composite Index)—SCI (Shanghai Composite Index) in short—plummeted from a peak of 5522 points at the outset of 2008 to an all-time low of 1664 points on October 28, eroding investor confidence to a marked degree.

Figure 1. Decline in SSECI during the 2008 crisis. Source: The figure is adopted from Zhao et al. (2019).

Figure 1. Decline in SSECI during the 2008 crisis. Source: The figure is adopted from Zhao et al. (2019).

Amidst diminishing external demand, sluggish domestic consumption, and a plummeting stock market, the Chinese government embarked on a series of rescue initiatives. On November 5, 2008, the State Council resolved to bolster domestic demand with a substantial injection of approximately 4 trillion Chinese yuan into infrastructure projects. "Besides expansionary fiscal policy, China also conducted easy monetary policy...By reducing the interest rate and the bank reserve requirement ratios to historical low as well as removing credit ceilings on loan business of commercial banks, China succeeded in injecting huge amount of liquidity into banking system" (Zhao et al., 2019: 174; see also Claessens et al., 2012). Concurrently, the government engaged in direct intervention in the equity markets: the China Securities Regulatory Commission halted initial public offerings (IPOs), announced a shift in stamp duty from bilateral to unilateral imposition to cut transaction costs, endorsed state-owned enterprises increasing their stakes or repurchasing shares in the secondary market, and required state-owned financial institutions as Central Huijin invested in shares of state-owned banks, including the Industrial and Commercial Bank of China, Bank of China, and China Construction Bank.

Regarding the stock market, the aforementioned suite of policy interventions had a stabilizing effect on investor sentiment, particularly in curbing the market's acute panic-driven downturn. Notably, on September 19, 2008, the Shanghai Composite Index saw a remarkable one-day surge of 9.46%, yet the market soon faced significant volatility and continued to reach new lows, bottoming out on October 28. The intricacies of the global economic landscape and the challenges of domestic economic restructuring meant that the stock market did not swiftly revert to pre-crisis levels but instead entered an extended period of adjustment and consolidation.

Table 1. Stock stimulus and real estate market stimulus in 2008.

Table 1. Stock stimulus and real estate market stimulus in 2008.

	Major measures	Date of announcement
Monetary easing & Stock stimulus	Reduction of interest rates	September 16, October 8, October 29, November 27, 2008
	Suspension of IPO	September 17, 2008
	Reduction of stamp duty on share trading	September 18, 2008
	State-owned enterprises are required to repurchase shares	September 18, 2008
	Central Huijin announces additional holdings in state-owned bank stocks	September 18, 2008
Real estate market stimulus	Temporary exemption of stamp duty on house purchases	October 22, 2008
	4 trillion Chinese yuan investment for a number of projects, the first of which is real estate	November 9, 2008
	The Chinese Premier pointed out that the real estate industry is an important pillar of economy.	November 11, 2008

Regarding the economy, China's economic indicators also began to show a gradual recovery. As evidenced by GDP growth, the rate dropped from 9% in Q3 2008 to a low of 6.2% in Q1 2009, only to rebound to 7.9% in Q2 2009, and further rise to 9.1% in Q3 2009. Among the world's major economies, China appeared to be one of the first to emerge from the recessionary shadow. However, it is debated that the substantial increase in leverage and the fiscal and monetary stimulus measures were effective in inflating asset prices (Galí & Gambetti, 2015). "The 4 trillion yuan stimulus package probably led to later problems of systemic risk" (Zhao et al., 2019: 174), echoing the similar opinion hold by Wu et al. (2024), Zhou and Ronald (2017). As the government's extensive economic stimulus plan contributed to a rapid escalation in housing prices, for many years following, China had to grapple with the challenges of de-capacity, de-stocking, and de-leveraging, which came to characterize the economic policy legacy of former Premier Li Keqiang's tenure.

2.2.2015. Market Stimulus and Rescue

After an initial surge of enthusiasm, the repercussions of the illusory boom in 2008 swiftly came to light: "China has to deal simultaneously with the slowdown of economic growth, the structural adjustments of the economy, and the adverse consequences of the previous economic stimulus policies" (Teng et al., 2019: 439). By 2014, the Chinese economy was grappling again with a dual challenge of waning domestic demand and diminished external demand. Confronted with these economic headwinds, the Chinese government sought to rekindle economic growth through another round of liquidity injections. In 2014, the government proclaimed the advent of a "targeted easing" policy, aiming to bolster the agriculture sector and the small and micro enterprises (SMEs). China's central bank, the People's Bank of China (PBoC), resolved to lower the Chinese yuan reserve requirement ratio for county-level rural commercial banks by 2 percentage points, effective from April 25. On June 16, a further reduction of 0.5 percentage points was applied to the reserve requirement ratio for commercial banks that met specific lending targets to farmers and SMEs, thereby broadening the ambit of the targeted easing measures. However, as the economic climate deteriorated, the so-called "targeted easing" morphed into a more generalized easing. On May 8, 2014, the PBoC determined to broaden the financing avenues for consumer finance firms and other non-bank financial entities to ramp up financial backing for consumer spending. In September 2014, the PBoC and the China Banking Regulatory Commission resolved to introduce a more focused easing monetary policy to assist with housing loans for individuals. The aggregate benchmark lending rate slid from 6.00% at the year-end of 2014 to an all-time low of 4.35% by October 2015.

Chinese government is also trying to expand the opening of its capital markets in hopes of attracting more investment. "In April of 2014, the mainland China–Hong-Kong Connect program (Stock Connect program) was officially approved by the Securities and Futures Commission (SFC) in Hong Kong SAR, China and the China Securities Regulatory Commission (CSRC). The Shanghai-Hong Kong Stock Connect was launched in November of 2014; the Shenzhen-Hong Kong Stock Connect was launched in December 2016. Under these programs, investors in each market can trade shares on the other market using their local brokers and clearinghouse" (Cortina et al., 2024: 10).

However, it appeared that the Chinese government's initiatives did not catalyze the real economy with capital as anticipated. The liquidity that was unleashed did not seamlessly permeate the real economy but instead became ensnared in the financial markets, inflating asset prices (Bieliński et al., 2017), and sowing the seeds of potential future downturns (Cortina et al., 2024; Pan & Yu, 2024; Qian, 2016). During the first half of 2015, a rapid surge in the bull market was observed. The euphoria of this market, compounded by the state media's exhortations for domestic investors to engage in the stock market, resulted in a dramatic increase in the number of retail investors (Li, 2015), with capital funneling into the stock market in pursuit of quick returns.

Owing to the Chinese government's perceived deficiency in financial regulatory oversight, as evidenced by subsequent events, a multitude of investors procured excessive leverage through diverse shadow banking channels to speculate in the stock market. As Pan and Yu (2024: 156) remarked, "in 2015, the bull market since 2014 has been in full swing under the support of leverage, and the market accelerated, and the CSI 500 index, which represents the growth stocks, rose by 119%; the GEM (Growth Enterprise Market) index, which represents the emerging growth sector, increased by 175%, and the average PE (Price Earnings) rose to more than 140 times."

In retrospect, the so-called bull market around 2015 could be delineated into the following phases: the tranquil, bull, crash, and post-crash periods, as observed by Wang and Hui (2018). From the outset of 2015 through March, certain small and medium-cap stocks commenced an ascent, indicative of a burgeoning optimism in the equity markets, spurred by a surge of liquidity. Between March and June, a market-wide ascent took hold, with virtually all equities partaking in the rally. During this epoch, the Shanghai Composite Index mounted from 3234 points at the year's commencement to a zenith of 5178.19 points on June 12 (Laskai, 2016; Zeng et al., 2016). However, against the backdrop of a yet-to-improve economic landscape and persistent pressures from currency depreciation, there was a considerable divergence between stock prices and their underlying fundamentals. "The value of many shares rose at a rate and speed that made little sense. Many companies with meager earnings (or even losses) were seeing a meteoric rise in their shares. Meanwhile, the country’s broader economy was going the other way, with economic growth slowing down significantly" (Zeng et al., 2016: 412). "The market gave the emerging growth stocks too high expectations, and the valuation of the serious bubble is the root cause of the crisis" (Pan & Yu, 2024: 156).

Figure 2. The four periods of Chinese stock market from 2014 to 2017.

Figure 2. The four periods of Chinese stock market from 2014 to 2017.

Commencing June 15, 2015, a precipitous decline befell various indices of China’s stock market, including the Shanghai Composite Index, Shenzhen Component Index, and growth enterprise market index (Li, 2016). Within a mere two-month span, the Shanghai Composite Index experienced a nearly 40% nosedive, inciting a liquidity crunch and provoking profound market consternation (Li, 2015; Zhao et al., 2019).

Table 2. Primary downtrend wave of major Chinese stock indices in the 2015 crash. The aforementioned chart illustrates the plunge in China's key stock indices from the market's peak on June 12, 2015, to the initial phase of the market's descent on August 26, 2015 — a period I refer to as the "primary downtrend wave." Post-August 26, 2015, the stock market experienced a gradual stabilization and a subsequent recovery; however, this was short-lived, as the market resumed its downward trajectory in December. The decline persisted, setting new lows until February 2016, a phase I designate as the "secondary downtrend wave.".

Table 2. Primary downtrend wave of major Chinese stock indices in the 2015 crash. The aforementioned chart illustrates the plunge in China's key stock indices from the market's peak on June 12, 2015, to the initial phase of the market's descent on August 26, 2015 — a period I refer to as the "primary downtrend wave." Post-August 26, 2015, the stock market experienced a gradual stabilization and a subsequent recovery; however, this was short-lived, as the market resumed its downward trajectory in December. The decline persisted, setting new lows until February 2016, a phase I designate as the "secondary downtrend wave.".

Stock code	Securities name	Range rise or fall (%)
000001.SH	SSE Composite Index	-43.3
399001.SZ	Shenzhen Component Index	-45.3
000300.SH	CSI (China Securities Index) 300	-43.3
399905.SZ	China Securities 500	-45.8

Confronted with the implosion of the stock market, the Chinese government embarked on another extensive rescue operation. On June 27 2015, the central bank executed a 0.25 percentage point decrease in the reserve requirement ratio. Subsequently, on July 4, the China Securities Regulatory Commission declared a halt to all pending initial public offering (IPO) plans to alleviate the capital strain on the secondary market. This tactic of modulating the stock market's trajectory by governing the pace of IPOs has been a historical norm for the Chinese government. Concurrently, authorities declared their intention to encourage long-term capital inflows from funds such as pension funds and insurance funds, aiming to refine the investor composition of the market. More significantly, the State-owned Assets Supervision and Administration Commission (SASAC) instructed state-owned enterprises to refrain from reducing their equity stakes in listed companies. The China Securities Regulatory Commission, with financial backing from the People's Bank of China, mobilized other state-owned financial enterprises to inject liquidity into the stock market. For instance, "the China Securities Finance Corporation Limited (CSF) and China Central Huijin Investment Limited (CCH) lent money to 21 brokerages and formed a 'national team'" (Huang et al., 2019: 350). "The Chinese government bought a very large number of shares in addition to firms on the major index. The national team bought 1389 stocks in our sample, almost half of the total A-share listed companies" (Cheng et al., 2022: 3). It is estimated that the national team's expenditure on directly purchasing stocks on the secondary market surpassed 1.5 trillion yuan.

The China Securities Regulatory Commission also imposed a ban on shareholders holding more than 5% of a listed company's shares from offloading their stakes within a six-month period. On July 8, more than 1600 of the 2800 listed companies on the Shanghai and Shenzhen stock markets suspended trading, representing 57% of the total listed companies in China (Li, 2015: 65). Additionally, China enforced media control, prohibiting the dissemination of news detrimental to the stock market. "Officers under the Ministry of Public Security investigated those who were suspected to be manipulating the market or 'spreading rumours' online. Wang Xiaolu王曉璐, a journalist from the respected financial magazine Caijing財經, was arrested and put on the television to make a 'confession' for his media reporting" (Li, 2015: 66; see also Laskai, 2016: 52-53).

Table 3. Stock stimulus and real estate market stimulus in 2015.

Table 3. Stock stimulus and real estate market stimulus in 2015.

	Major measures	Date of announcement
Monetary easing & Stock stimulus (before 2015 crash)	"Targeted easing" for small and medium enterprise	2014
	Reserve requirement ratio cut for county-level commercial banks	April 25, 2014
	Expanded access to finance for consumer finance companies and other non-bank financial institutions	May 8, 2014
	Further reductions in selected banks' reserve requirements	June 16, 2014
	"Targeted easing" to support housing loans	September, 2014
	Mainland China–Hong-Kong Stock Connect program	December, 2014
Monetary easing & Stock stimulus(after 2015 crash)	Reduction of interest rates	June 27, August 26, 2015
	Reduction of requirement ratio	June 28, September 6, October 24, 2015
	Pension fund was announced to enter the stock market	June 29, 2015
	Reduction of transaction cost	July 1, 2015
	Suspension of IPO	July 4, 2015
	The central bank's liquidity support to state-owned financial institutions. Central Huijin started buying ETF	July 5, 2015
	Central state-owned enterprises are not allowed to reduce their holdings of listed companies.	July 8, 2015
	The scope of insurance funds to invest stock is broadened	July, 2015
Real estate market stimulus	Reduction of payment ratio for home purchase	March 30, September 1, September 30, 2015
	Various cities cancel or relax purchase restrictions	2015
	Reduction of taxes on transfer of personal housing	March 30, 2015
	Qualified foreign institutions and individuals can purchase house	August 27, 2015
	Shantytown renovation monetization - The government compensates residents of demolished shantytowns in the form of monetary compensation, and the residents then purchase housing in the commercial housing market	August, 2015

Similar to the 2008 scenario, following the announcement of the rescue measures, the stock market initially experienced a fleeting rebound in August 2015. This was succeeded by a period of pronounced volatility and further declines to new lows, with a gradual recovery only materializing after February 2016.

3. Stock Market Stimulus in 2024

3.1. The Deteriorating Economy

At the onset of 2020, the global stock market was jolted by the initial shockwaves of the COVID-19 pandemic, with a correction following a period of overexuberant growth (Barai & Dhar, 2024; Song et al., 2022). However, during 2020 and 2021, as the pandemic wreaked havoc on the global economy, China's strict pandemic control measures resulted in fewer infections and a relatively stable supply chain, leading to rapid economic growth (Barai & Dhar, 2024). Furthermore, the targeted easing measures initially deployed to combat the pandemic did not precisely reach small and medium-sized enterprises (SMEs). Instead, capital was diverted into the stock market, causing a surge in Chinese stock market indices during the pandemic (Jin, 2022). Overall, the Chinese stock market and economy experienced a dual peak in 2021.

However, as vaccination rates rose globally, the gradual achievement of herd immunity, and the declining severity of the Omicron variant, economic activities began to rebound worldwide. The high costs associated with testing and quarantine measures led to a reevaluation of pandemic policies. Maintaining strict control measures was no longer deemed economically viable. Yet, China failed to timely adjust its pandemic prevention policies (Chang et al., 2023), persisting with stringent lockdowns (Albulescu, 2021), which had severe economic repercussions. In fact, it led to a decoupling of the Chinese economy from global trends, prompting capital flight, a contraction in domestic investment, and a significant tightening of liquidity (Li et al., 2023).

From 2022 onwards, China's economic indicators began to decline, with Q4 2022 GDP growth at a mere 2.9%, significantly below the 3.9% growth in Q3. In the face of this downturn, Chinese government appeared indecisive, neither reassessing its pandemic prevention strategies nor committing to more market-oriented economic reforms. Instead, it found itself ensnared in policy contradictions, leading to a sharp fluctuation in the economic policy uncertainty, which in turn adversely affected the stock market (Song et al., 2023: 299). The EPU (Economic Policy Uncertainty) Index, a metric developed to gauge economic policy uncertainty based on the frequency of terms like economy, policy, and uncertainty in newspaper articles, has been widely utilized by researchers to analyze its impact on various economic factors, including studies by Sum (2012) on the U.S. stock market and Gulen and Ion (2016) on Asian stock markets. Here, we demonstrate that post-COVID-19, the uncertainty surrounding China's government economic policies increased.

Figure 3. The EPU Index of China. Data Source: Baker et al. (2024) developed an Economic Policy Uncertainty Index for China based on the South China Morning Post. The index is monthly and runs from January 1995 to the present.

Figure 3. The EPU Index of China. Data Source: Baker et al. (2024) developed an Economic Policy Uncertainty Index for China based on the South China Morning Post. The index is monthly and runs from January 1995 to the present.

During the pandemic, the lockdown measures severely disrupted the operations of numerous small and medium-sized enterprises (SMEs), while the earnings of state agency employees remained largely unaffected. In such a predicament, the government's allocation of finite resources becomes pivotal in mitigating economic hardships (Esteban-Pretel et al., 2022). However, in China, resource allocation by the government appears to be far from optimal. While other nations globally have widely distributed living subsidies to individuals, China's government has offered minimal direct assistance to low-income individuals during the pandemic, opting instead to support businesses by lowering loan interest rates through monetary policy again. Yet, this support has been shown to disproportionately benefit large enterprises over SMEs (Chen et al., 2024). Severe inequality in resource distribution, together with increasingly stringent city lockdown during the pandemic, intensified intergenerational tensions and discontent among the youth. "In May 2022, during China’s COVID lockdown, a police officer warned a Shanghai resident who did not follow the COVID policy by claiming that 'after you are punished,' the negative impact will 'influence your next three generations.' The resident, however, replied defiantly, 'We are the last generation. Thank you.'" (Cheng & Wei, 2024: 1).

Beyond the immediate repercussions of the COVID-19 pandemic, the Chinese economy grapples with a host of entrenched structural issues, such as an aging population, urban-rural disparities, inequitable income distribution between state-owned and private sectors, divergent industrial entry barriers for state and private enterprises, inadequate enforcement of labor laws, and the suppression of private entrepreneurs. Several non-economic factors have likewise eroded investor confidence in China's economy. For instance, authorities have intensified media censorship to the extent that negative economic commentary is forbidden on social media platforms. The regulation of civil servants' international study and exchange has become increasingly stringent, effectively revoking civil servants' right to travel abroad by confiscating their passports. Efforts to shift public focus through the propagation of nationalistic narratives have fostered xenophobia. Furthermore, increased economic centralization has amplified external skepticism regarding China's future commitment to legal and market reforms.

All the factors led to a deterioration in various economic indicators for China since 2022, with some key metrics showing the most severe conditions since the era of reform and opening up from 1978. From July 2022, the Purchasing Managers' Index (PMI) began to consistently register below the 50 threshold, a figure that has been below 50 for 31 out of the last 39 months leading up to October 2024. Starting in June 2023, the Consumer Price Index (CPI) began to remain persistently below 0, and the GDP deflator has been in negative territory for six consecutive quarters. Additionally, foreign capital has been experiencing a continuous outflow. Since the third quarter of 2023, China has witnessed its first net outflow of foreign capital in the history of its reform and opening up.

Figure 4. Quarterly inbound foreign direct investment. Source: The Figure is adopted from Bloomberg (2024).

Figure 4. Quarterly inbound foreign direct investment. Source: The Figure is adopted from Bloomberg (2024).

Unemployment is universally recognized as one of the most critical macroeconomic challenges (Arslan & Zaman, 2014). High unemployment rates not only sideline productive economic resources but also strain social safety nets (Sharp et al., 2015). China's youth unemployment rate has reached alarmingly high levels. In an effort to obscure the true jobless rate and to evade the negative public sentiment that comes with such data, the government announced a cessation of youth unemployment data releases after July 2023, following six consecutive months of record highs. From January to June 2023, China's youth unemployment rate stood at 17.3%, 18.1%, 19.6%, 20.4%, 20.8%, and 21.3% respectively (Oi & Marsh, 2023).

Simultaneously, China's housing prices have continued to plummet, with a widespread and accelerated decline commencing in 2024. According to the National Bureau of Statistics of China (2024), in August 2024, real estate prices in 68 of the country's 70 major cities saw a year-on-year decrease, with an average drop of 5-10%. The repercussions of falling housing prices are profound: with the decline in housing values and a reduction in new land purchases by developers, government earnings from land auctions have also taken a hit. In 2023, local government revenues from land sell fell to 5.8 trillion yuan, a decrease of 31.8% from the peak in 2021. In the first half of 2024, local government land sell income fell by another 18.3% compared to the already diminished figures of 2023 (Ren, 2024).

To compensate for the decline in tax revenues, the government has turned to expanding so-called "non-tax revenues," primarily consisting of fines. This tactic has further eroded consumer confidence, propelling the Chinese economy into a deflationary spiral. However, for an extended period, the Chinese government has forbidden discussions of "deflation" in public. Yet, controlling public opinion does not appear to remedy economic issues. China's stock market has continued its downward trend. After reaching a low of 2635 at the start of 2024, the state initiated a rescue effort by purchasing a substantial amount of broad-based ETFs in an attempt to buoy the market. However, without any fundamental improvements, the stock market resumed its decline from the end of May 2024, reaching the earlier low by the end of September. During this period, any public commentary critical of the stock market was suppressed, and many prominent economists and investors were officially censored, "including Dan Bin, chairman of Shenzhen-based FEOSO Arbor Investment Management; Liu, a professor and director of the Capital Finance Institute at China University of Political Science and Law; Hong Rong, a stock market commentator and analyst; and Ge Long, founder of investment research firm Gelonghui" (CNN, 2023). The former editor-in-chief of the Global Times, Hu Xijin, is also silenced, despite the fact that he is labeled as the official mouthpiece of the Chinese government. In mid-2023, Hu Xijin declared his start into stock investing and frequently shared his trading insights on social media. However, with ongoing trading losses, he increasingly voiced his frustrations with the stock market.

While a comprehensive analysis of the Chinese economic crisis is beyond the scope of this summary, it is evident that the challenges faced by the Chinese economy are not merely cyclical but structural. They are not solely the result of U.S. interest rate hikes and cuts causing a liquidity cycle crisis, but rather stem from an endogenous structural crisis with Chinese own causes.

3.2. Stock Stimulus in September 2024 and its Effects

The economy's ongoing downturn has cast a pall over Chinese society, where a pernicious cycle has taken hold: consumers curtail spending, commodity prices plummet, companies see their profits slide, leading to pay cuts and job losses, which in turn drive down residents' incomes, and further diminish spending. In this spiral, the stock market has also succumbed to decline, relentlessly eroding the wealth of the populace. Indeed, the Chinese government's attempts to intervene and salvage the market have been relentless. Since 2024, the government's national team has been actively engaged in the A-share market, making strenuous efforts to prop up the sagging Shanghai Composite Index through continuous ETF purchases. Yet, these endeavors have been futile. The national team's market support has been met with an even more aggressive wave of short-selling, indicating a pervasive lack of confidence in China's economic and stock market outlook. During this period, the Shanghai Composite Index plummeted from 3,100 points to 2,689 points. By early September, the national team had seemingly conceded, ceasing their market support, which allowed the index to drop further, intensifying the despondency within the stock market.

The inflection point emerged in September 2024 when the U.S. Federal Reserve announced a 50 basis point interest rate reduction. Seizing this opportunity, the Chinese government resolved to implement a suite of economic stimulus policies. On September 24, 2024, the Chinese government revealed that it would convene a joint press conference involving the People's Bank of China, the State Financial Supervision and Administration Bureau, and the China Securities Regulatory Commission at 9 a.m., hinting at the unveiling of unexpectedly robust policy measures. This announcement was seen as a boon to the Chinese stock market, which commences trading at 9:30 a.m. The policies unveiled that day encompassed: Reserve requirement ratio cut; An exploration of establishing a stabilization fund designed to mitigate stock price volatility by purchasing shares when the market dips and selling when it rises; A market value management mechanism for stocks trading below their net value was introduced, mandating companies to engage in value management activities, with the central bank providing loans for share buybacks.

The most important measure is the introduction of innovative monetary policy instruments—a swap facility for securities, funds, and insurance companies to secure liquidity from the central bank by pledging assets, initially capped at 500 billion. This facility allows financial institutions to exchange riskier, less liquid assets (such as stocks) for safer, more liquid assets like government bonds. While this 500 billion swap facility is viewed as a financial innovation, it has international parallels, akin to the U.S. Term Securities Lending Facility (TSLF). However, while in the U.S. this instrument is a temporary measure to provide short-term stock market support during liquidity and confidence crises, in China it appears to be portrayed as a permanent feature. The head of the People's Bank of China stated on that day: "If well-executed, the initial 500 billion yuan could be followed by another 500 billion yuan, and even a third 500 billion yuan if necessary" (China Economic Net, 2024). This suggests that the targeted stock market liquidity enhancement is not a fleeting intervention but rather an open-ended, long-term strategy. Following the release of this news, the stock market experienced a significant uptick. The Shanghai Composite Index gained 114 points that day, a 4.15% increase, closing at 2863 points.

Positive stimulus for the stock market came in rapid succession. On Thursday, September 26, 2024, the Communist Party of China convened an extraordinary committee meeting on economics, a departure from the traditional schedule of April, July and December, signaling the central leadership's heightened focus on economic and stock market conditions. This led to a further market rally, with the stock market climbing by 104 points that day, a surge of approximately 3.6%, and closing at 3000.95 points, reclaiming the significant 3000-point threshold. On the following day, September 27, 2024, the final trading day of the week, the market's upward momentum persisted, with retail investors, buoyed by the news, funneling funds into the stock market. Trading activity was so intense that it overwhelmed the Shanghai Stock Exchange's servers, causing them to crash. Beginning at 10:23, traders reported delays in executing trades, and in some cases, a complete halt in transactions. The Shanghai Composite Index also ceased updating for an hour before resuming. Intermittent server jams and transaction delays continued throughout the afternoon, leading to a multitude of customer complaints about profitable orders turning into losses due to technical issues. On Saturday, September 28, 2024, the Shanghai Stock Exchange issued an apology and carried out technical upgrades and internal tests on Sunday, assuring the public that their systems could accommodate higher trading volumes. This was interpreted by investors as a preparation for a potential influx of orders, suggesting an exceptionally active market in the future.

Over the weekend, the Chinese government unveiled additional monetary and real estate policy measures. Monetary policy saw a 50 basis point interest rate reduction by the central bank. On the fiscal policy front, the government refocused on real estate stimulus. On September 29, the Ministry of Housing and Urban-Rural Development announced that it would support first-tier cities in fully leveraging their autonomy to regulate the real estate market. Previously, the central government had imposed administrative controls on housing price fluctuations nationwide. Now, with the government's announcement of decentralized real estate management, major cities announced the lifting of purchase restrictions, a policy initially introduced to curb rapid housing price increases. Many cities also announced reductions in mortgage interest rates and a relaxation of the social security payment duration requirements for home purchases. In essence, the government has either touched or eased restrictions on home buying in an effort to reignite the real estate market.

Table 4. Stock stimulus and real estate market stimulus in 2024.

Table 4. Stock stimulus and real estate market stimulus in 2024.

	Major measures	Date of announcement
Monetary easing & Stock stimulus	Reduction of interest rate and reserve requirement ratio	September 24, 2024
	Introduction of a swap facility of 500 billion yuan for securities, funds, and insurance companies	September 24, 2024
	300 billion yuan support for corporate share buybacks	September 24, 2024
Real estate market stimulus	Lowering existing mortgage rates	September 24, 2024
	The Politburo meeting proposed to promote the stabilization and recovery of the real estate market	September 26, 2024
	Major cities ease or lift purchase restrictions	September 29, 2024

Consequently, on September 30, 2024, the final trading day of the month in China, the stock market experienced a dramatic surge, with the Shanghai Composite Index soaring by an unprecedented margin, establishing a new historical record for the largest single-day increase. Out of the market's almost 5,300 listed stocks, only 8 declined. Numerous ETF funds hit their upper limits for the day. The total trading volume for the day was an astronomical 2.5 trillion, representing five times the typical daily volumes seen throughout most of August and September of the same year. From May 2023 to September 2024, the Shanghai Composite Index had plummeted from 3,400 points to 2,689 points over a 16-month period. However, in a swift reversal starting September 24, 2024, the Index leaped from 2,748 points to 3,336 points within a mere 5 trading days. It recorded consecutive daily gains of 4.15%, 1.16%, 3.61%, 2.89%, and 8.06%. In this rally, the small and medium-sized stocks, which had suffered the most significant declines, experienced the most remarkable recoveries, echoing the market liquidity-driven scenario of 2015. According to market segmentation analysis, the impact of economic policy uncertainty on small-cap stocks is more pronounced, with greater volatility in stock market returns (Song et al., 2023: 299). This extraordinary rally astounded Chinese stock market investors and enticed a fresh wave of retail investors to enter the market.

In 2008, confronted with external shocks, the Chinese government deployed expansionary monetary policy and stimulative real estate measures to invigorate the stock market and the broader economy. Similarly, in 2015, prior to the stock market boom, the government utilized a comparable approach of loose monetary policy and real estate incentives to foster economic growth. When the market became overinflated and subsequently began a downward spiral, the government persisted with liquidity injections and further stimulated the real estate market to sustain economic progress. In 2024, grappling with an economic slump that originated in 2022, the Chinese government ultimately retraced its steps, opting for a combination of monetary easing for stock stimulus and real estate stimulus policies to combat the economic downturn. By flooding the market with an massive volume of liquidity—so substantial that the term "massive" seems an understatement—the Chinese government effectively used the descriptor "unlimited" to characterize its efforts. This led to a sharp, short-term recovery in the stock market, which also drew substantial funds from the bond market, banks, and other sectors into the equity markets. During this period, it was inevitable that individuals and businesses would increase their leverage, seeking to reap excessive returns fueled by the rising stock market. This strategy is, in fact, seen as part of the government's underlying intent: by bolstering the stock market, it aimed not only to restore public confidence in the Chinese economy but also to enable citizens to profit from the market. This, in turn, was expected to stimulate consumption, benefit companies, and help the economy break free from the deflationary cycle.

4. Hidden Dangers

5. Conclusions

References

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