China's $19 Billion Stock Rescue Fails to Stop the Bleeding
A Bear Market, Sealed by a Record Losing Streak
Chinese equities officially entered a bear market last week. The CSI 300 index fell 20% from its June peak, dropping as much as 1.7% on Thursday, October 22, and stood at 4,060.19 at the morning break, about 20% below its June high and down 13.94% since January 1. The gauge has declined for ten consecutive weeks, an unprecedented streak. The pain continued intraday on Friday, with the index sliding as much as 1.9%, taking intraday weekly losses to nearly 5%, the worst in three months, and breaking below the closely watched 4,000 level, before recovering to close back above 4,000.
Beijing Opens the Taps, Without Saying So
$188 Billion of Dry Powder Still on the Sidelines
The state's arsenal is far from empty. Central Huijin Investment, the state investor leading stabilization efforts, raised $231 billion through ETF sales in the first half of the year but has redeployed only $43 billion since purchases resumed in July, Bloomberg Intelligence analysts led by Rebecca Sin estimated. That leaves roughly $188 billion in dry powder, enough for about 75 sessions of buying at the recent pace. Yet the same analysis cautioned that state buying alone may not deliver a sustained recovery.
The AI Trade Unravels, Wiping Out $480 Billion
A 4.5% Economy That Cannot Lift Stocks
Headline growth actually beat forecasts. GDP expanded 4.5% year on year in the third quarter, up from 4.3% in the second quarter and above the 4.4% consensus, the National Bureau of Statistics reported on October 19. Year-to-date growth stands at 4.6%. September industrial output rose 5.5%, and retail sales grew 1.1%, up from 0.4% in August. But the mix remains lopsided: telecom equipment sales surged 31.1% on new phone launches, while autos plunged 21.2% and gold and jewellery fell 9.6%. Strong exports and factories coexist with households that save rather than spend.
Who Gets Hurt as Patriotic Buying Fizzles
Retail investors and fund holders bear the brunt, watching index funds buy into a falling market. "Cheapness alone is not the catalyst," said Jade Fu of UBS Asset Management, pointing to missing growth, earnings momentum, and investor confidence. Zhu Zhenxin of Asymptote Investment Research in Beijing said the national team's return is about slowing the selloff, not engineering a turnaround. Gary Ng of Natixis warned that if the government keeps pumping money in, short-term gains will not last.
What Comes Next: More Buying, Lower Valuations
Two things matter now: whether the national team buys more and for longer than in its April 2025 and July 2026 rescues, and whether earnings stabilize. Morgan Stanley sees offshore Chinese shares falling another 10% to 15%, bringing valuations to about 8 times forward earnings, with mainland shares de-rating to 10 to 11 times; the CSI 300 trades at 11.6 times and the Hang Seng at 9.5 times. With no global equity rebound to ride, Beijing may have to intervene harder and longer this time, while investors wait for fundamentals, not patriotism, to set the bottom.
