As aggressive US “Liberation Day” tariffs weighed on China’s stock market, Beijing rallied its most reliable financial market troops to stop its domestic equities from nosediving.
This is the “national team”, a term loosely used to refer to government-affiliated investors.
Central Huijin Investment, a subsidiary of the $1.3 trillion sovereign wealth fund China Investment Corporation (CIC), first announced to state media on 7 April that it had increased A-share holdings. The fund declared itself as a national team investor and said it intends to “fully unleash its function as patient capital and long-term capital” to stabilise the market.
Within two days, state pension investor the National Council for Social Security Fund (NCSSF) said it would also increase its domestic equities allocation, as well as state investment managers China Chengtong Holdings Group and China Reform Holdings Corp. The funds collectively pledged hundreds of billions of yuan to invest in A-shares.
The national team first emerged as a market rescue force in June 2015 at the height of an extraordinary market rout, fuelled by a comedown in A-shares’ frothy valuation and a government crackdown on leverage, which saw the Shanghai Stock Exchange Composite Index losing 30 per cent of its value within three weeks.
Its approach has pivoted from direct share purchases to broad indices support via ETFs in recent years.
Senior lecturer at Australia’s La Trobe Business School Michael Li says the national team has played a pivotal role in maintaining the short-term health of the Chinese stock market. In a recent study examining the 2015 intervention, Li estimated that the national team’s ownership helped reduce stock crash risks by 30 to 45 per cent in the following three years.
But like any complex strategic government intervention, Li says it is possible that the national team’s actions can lead to some unintended consequences.
The network
The national team is not a defined list of investors but can include sovereign wealth funds, state investment arms, brokers, regulators and banks whose capital can be mobilised by the central government during times of market stress.
Some of the most prolific members are Central Huijin, NCSSF, foreign exchange regulator the State Administration of Foreign Exchange (SAFE) and stock lending provider China Securities Finance.
These institutions have interwoven ownership and reporting structures. Central Huijin was established by the central bank PBoC in 2003 and later transferred to CIC to effectively become its domestic equity unit – although there are “strict firewalls” between Central Huijin and CIC’s overseas investment activities.
Central Huijin acts on behalf of the central government to exercise shareholder rights in major commercial banks and other strategically important financial institutions.
China Securities Finance was owned by major market operators such as Shanghai and Shenzhen stock exchanges, who this February collectively transferred 67 per cent of their shareholdings to Central Huijin.
Meanwhile, SAFE operates under PBoC and manages the state foreign exchange reserves which at the end of this March amounted to $3.2 trillion, and NCSSF is a unit under the Ministry of Finance.
Central Huijin, the NCSSF and China Securities Finance held close to 4 trillion yuan in A-shares by the end of 2024, according to estimates from Wind data. The position represented approximately 4 per cent of China’s stock market value and is likely to have increased with recent stabilisation efforts around the US tariff. These holdings also have a significant sectoral bias as close to 80 per cent are bank shares.
The national team is an important anchor in a market like China where, according to official data, 70 per cent of equity trading is traced back to fast-moving retail money.
“Because [the national team’s] motivation, remember, is to stabilise market, not to gain profit,” Li says, but acknowledges this could have some negative short-term effects.
“Generally speaking, because the share price should be determined by its fundamental value like cash flows and other economic factors, the purchase of these national team investors will temporarily distort the share prices,” Li says.
“It’s not good for the overall market because it reduces the informativeness of the share price… it contains these deliberate trading.”
In the long term, while these rescue efforts likely do not have negative impact on A-shares – as the temporary boost from the national team will wear off and prices will revert to reflect fundamental value – it’s also hard to determine if they’ve contributed to the development of a more mature stock market or better beta, Li says. The MSCI China A index has had a zero per cent 10-year return despite volatile performance.
Goldman Sachs’ China equity strategist Fu Si told Chinese financial press that the national team acts more as a safety net and expected the buying to slow down after the market stabilises, while a sustained market recovery needs to be driven by improvements in consumption and real estate.
Global influence
While short-term asset price stabilisation is important, Li suggests it needs to work with government stimulus to boost investor sentiment should the US-China economic conflict escalate.
But the national team’s domestic influence is only part of the story as some members are prolific global investors, and there are already signals that the Chinese government is seeking to exercise the funds’ influence to exert pressure on the US.
Some of the state-backed funds are looking to exclude private equity investments in US companies, even if they are made by investment managers based outside of the country, the Financial Times reported on Tuesday.
CIC was among the investors reportedly pulling back from the US. The fund allocated close to half of its portfolio in alternatives at the end of 2023, which is the latest disclosure, which makes it one of the world’s largest investors in the asset class.
It seems that the national team is an important leverage for the Chinese government to not only maintain peace in the domestic market but also fight economic war overseas if needed. With no end in sight for the tit-for-tat trade war and little willingness from both sides to negotiate, balancing the duties of global investments and national interest will be a complicated subject for these sovereign investors in the near future.
