How CSF played a LIC in China's stock market recovery

The Chinese market saw some 900 billion yuan ($147 billion) intervention by the government in the last two months to halt a market rout, reports AFP citing a research report by US investment bank Goldman Sachs.

The Chinese government spent 860 to 900 billion yuan to support the stock market in June and July.

Despite a slowing economy and weakening corporate earnings, China's main stock indexes had more than doubled over the year to mid-June, before the sudden swoon that saw them tumble more than 30 per cent.

Among major components of the rescue package was funding the state-backed China Securities Finance (CSF) to buy stocks. CSF is the state-owned margin lending agency and is used to injecting rescue funds into the market, the AFP report said.

The government has not disclosed how much funds it has allotted to CSF but Goldman estimates CSF has about Rmb2tn ($322 bn) at its disposal.

Goldman said the government bought heavyweight blue-chip stocks in sectors such as banking, insurance, food and beverage, and healthcare.

The CSF is similar to the Indian state-run insurer LIC which has bailed out government's divestment programme on various instances.

In 2013, LIC bought 3.2 crore shares, or 46.5 per cent of the total stock sale held by the government to offload stake in Rashtriya Chemicals and Fertilisers.

In February 2015, LIC bought over 28.47 crore shares or 4.51% stake in the offer for sale of Coal India (CIL).

It also bought stock in divestments programmes of Nalco, Hindustan Copper among others.

Except for the motive of the fund infusion-In LIC's case, it was buying of PSU stocks; in CSF's case, stocks were bought to bring stability to the stock market-the modus operandi for the rescue was the same by both governments.