China boosts key market tools, raises FX reserve ratio for a steady yuan

China's central bank and securities regulator met on Monday to review two capital-market support tools and discuss how to use them more effectively to keep the stock market stable and healthy. The two tools comprise the swap facility for securities firms, fund managers and insurance companies, and the relending program for share buybacks and stake increases.

The meeting noted that both tools have operated smoothly since their launch in October 2024. The swap facility for securities firms, fund managers and insurers – a tool that gives institutions easier access to liquidity – has been rolled over several times and now has an outstanding balance of 105 billion yuan ($14.5 billion), helping institutions put their professional investment capacity to work. Under the relending program for share buybacks and stake increases, as per the meeting, loan agreements worth about 440 billion yuan have been signed and more than 280 billion yuan disbursed, meeting listed companies' needs for market-value management, which is a Chinese term for efforts to support share prices. The tools are gradually strengthening the market's built-in stabilizers, and both institutions and listed companies have become more capable and more willing to support market stability.

The meeting also said China's central bank, the National Financial Regulatory Administration, and the China Securities Regulatory Commission (CSRC), will step up policy support, further refine the tools' parameters and implementing rules, and encourage financial institutions to make full use of them.

The CSRC said it will broaden the swap facility's participant base and expand its quota, having approved a third batch of operations by 31 institutions with requested quotas exceeding 100 billion yuan. It will also raise the coverage of the buyback and stake-increase relending program, urging listed companies that have announced loan-backed buyback plans to speed up implementation and those that have already applied for loans to step up purchases, sustaining the current momentum and contributing to market stability.

Separately, China's central bank will raise the foreign exchange reserve requirement ratio for financial institutions by 2 percentage points to 6% from November 15. The announcement, made by the central bank on Tuesday, is a move to strengthen the management of forex liquidity.

Bruce Pang, adjunct associate professor at CUHK Business School, said the move will help curb one-sided bets on the yuan, as well as herd behavior and pro-cyclical trading, and support two-way fluctuations in the currency. The significance, he said, lies in the clear policy signal that regulators are committed to keeping the FX market stable, preventing one-sided expectations from becoming entrenched and guarding against excessive exchange-rate swings.