"Long Money for Long Growth": China Implements Measures to Drive Long-Term Capital into A-Shares
China has unveiled an ambitious new policy framework aimed at boosting long-term investment in its capital markets. Jointly issued by six government bodies, including the Central Financial Office and the China Securities Regulatory Commission (CSRC), the Implementation Plan for Promoting Medium- and Long-Term Funds in the Market(hereinafter referred to as the "Plan") introduces targeted reforms to strengthen the role of long-term capital in stabilizing and revitalizing the equity market.
Why Long-Term Capital Matters
Long-term funds, such as those from public mutual funds, insurance companies, pension funds, and corporate annuities, are critical for maintaining a stable and healthy capital market. In 2024, the Central Financial Committee emphasized their role as “ballast stones” of market stability, reflecting their importance in counteracting short-term volatility.
The Plan not only builds on the Guiding Opinions on Promoting Medium- and Long-Term Funds in the Marketissued in late 2024 but also delivers a more detailed roadmap to address key bottlenecks. This includes enhancing the scale of equity investments, reforming performance evaluation mechanisms, and fostering a conducive market ecosystem.
Key Features of the Plan.
Scaling Up Equity Investments
1.Public mutual funds must increase their holdings of A-shares by at least 10% annually over the next three years.
2.Starting in 2025, large state-owned insurance firms will allocate 30% of annual new premiums to A-share investments, channeling an estimated hundreds of billions of yuaninto the market each year.
3.A second pilot program for long-term insurance fund investments in equities, with a minimum scale of ¥100 billion, is slated for the first half of 2025.
Extending Evaluation Cycles
1.The short-term performance evaluation cycle, a key obstacle for long-term investment, will be replaced by a three- to five-year assessment period.
2.For state-owned insurers, the annual performance evaluation weight on operating indicators will drop below 30%, with three- to five-year metrics accounting for at least 60%.
3.The National Social Security Fund (NSSF), with an average annualized return of 11.6% on A-shares over two decades, is positioned as a role model for value-oriented, long-term investment strategies.
Strengthening Pension Fund Participation
1.Basic pension funds will adopt three-year performance evaluations, while more regions will expand entrusted investments to increase the total pool of marketable funds.
2.Corporate annuities will see widened market access, including options for employees to invest independently and for fund managers to pursue diversified strategies.
Bolstering Equity Funds
1.Public mutual funds are encouraged to expand the scale of equity-focused products, aligning fund managers' and investors' interests to enhance long-term returns.
2.Private equity funds will gain greater flexibility with broadened product types and investment strategies under new regulatory frameworks.
Enhancing Market Ecosystem
1.Listed companies will be incentivized to increase share buybacks and dividend distributions, stabilizing stock prices and improving investor confidence.
2.Institutional investors, including public mutual funds and insurance companies, will be granted equal treatment in rights offerings, strategic placements, and other corporate financing activities.
Implications for Global Stakeholders
For multinational financial institutions and global asset managers, China's latest initiative signals a clear effort to align domestic capital markets with international standards of long-term investment. By reducing reliance on short-term speculative flows, the Plan aims to create a more predictable and sustainable investment environment.
The policy could also present opportunities for foreign investors to participate in a market increasingly dominated by institutional capital. For example, equal treatment for strategic investors in private placements and initial public offerings may open avenues for overseas funds to co-invest alongside domestic players.
A Broader Vision
The Plan reflects a broader ambition to transform China’s capital markets into a cornerstone of economic stability and high-quality growth. Its emphasis on long-termism, value investment, and market reform underscores a shift toward fostering a resilient and globally competitive financial system.
For investors eyeing China, this is a critical moment to engage with a market undergoing significant structural change. As the framework evolves, it promises to unlock new growth avenues for those willing to align with its long-term vision.
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