China national team shifts to tech stocks with record $2bn ETF inflows

China's state-backed funds poured a record RMB 13.8 billion ($2 billion) into the ChinaAMC STAR 50 ETF on Monday, shifting their market-stabilization playbook from blue-chip indexes to the hard-hit semiconductor sector as the STAR 50 Index slid 21 percent from a June peak.

At least five of China's largest insurers have pledged to boost equity investments, with China Life Insurance Co. saying its unit bought more than RMB 10 billion of stocks and funds and vowing to increase holdings in companies tied to new growth sectors, according to company statements. The People's Insurance Company (Group) of China and Ping An Insurance Group Co. made similar commitments, in a show of broad-based institutional support for the intervention.

The STAR 50 ETF — the largest fund tracking the chip-heavy index — drew inflows that surpassed the Huatai-PineBridge CSI 300 ETF, which attracted RMB 12.6 billion on the same day, according to Bloomberg-compiled data. The reversal marks a departure from the national team's previous pattern: during the first two months of 2024, state-backed entities bought a net RMB 410 billion ($57 billion) in ETFs, with about 76 percent allocated to CSI 300 trackers, according to UBS analysis. State-backed purchases hit approximately $17 billion into blue-chip index funds during January 2024 alone.

The shift toward tech stocks shows the severity of the selloff in semiconductor shares, which have been swept up in a broad-based decline as turbulence in memory-chip stocks spilled into the wider market. Investors are also bracing for the mega listing of CXMT Corp. in the coming days, which could further pressure the sector. The STAR 50 Index has slumped 21 percent from its peak in June, making it one of the worst-performing major Chinese equity benchmarks this year.

Broader stabilization efforts

Beyond ETF purchases, authorities are deploying additional tools to support markets. Bosera Fund Management said it would invest RMB 50 million of proprietary funds into equity products it manages — a move typically reserved for periods of acute market stress. In a rare step, brokerage GF Securities raised its margin financing quota by RMB 90 billion, potentially giving investors greater access to liquidity just as leverage is being unwound. Chinese traders cut leveraged positions at the fastest pace since the 2015-16 market crash on Friday, according to exchange data.

The China Securities Regulatory Commission has also convened meetings with investors to gather views on promoting stable capital market development, vowing to prevent risks, improve investor protection and enhance returns, according to a statement.

What's at stake

The intervention treats a symptom rather than the underlying cause. China's A-share market, valued at nearly $9 trillion, continues to face headwinds from a struggling property sector, deflationary pressures and demographic challenges that ETF purchases alone cannot resolve. The scale of state buying also raises questions about currency stability: deploying tens of billions of dollars into domestic equities puts pressure on China's foreign exchange reserves and the yuan. Any significant weakening of the yuan has historically acted as a catalyst for capital outflows, as it did during previous devaluation episodes.

The STAR 50 Index surged 7 percent on Tuesday, while semiconductor stocks rebounded sharply, suggesting the intervention has provided near-term relief. Whether the national team can sustain this momentum — and at what cost — will determine if the tech selloff stabilizes or resumes.

This article is for informational purposes only and does not constitute investment advice.