China’s stock rout raises questions over who is selling

China is moving to halt a new slide in its equities market, barely two years after its last bailout. Authorities have revived the toolkit used in 2024. The central bank is making cheap loans available for companies repurchasing their own stock, and it is supplying cash to institutional investors. State-backed funds, known as the national team, also appear to be more active.

Regulators have additionally turned to window guidance, an unofficial request for large investors and brokers to hold off on selling.

The numbers are stark. October was the weakest month for Chinese shares in over a decade. The CSI 300 Index, which tracks blue chips, has slipped into a bear market since reaching its peak in late June. The Star 50, heavy in chip companies, has at points dropped by as much as 48 per cent.

Who is selling?

Hedge fund Shiva Capital Group has blamed insurers for the slump. Its founder, Hong Liang, wrote to clients that insurance companies had bought heavily into technology shares close to their July high, then cut those holdings sharply in late September. He called the conduct “truly baffling”.

CNA notes that Liang has a motive to shift the blame, since China has a long record of pinning sell-offs on private investors. The commentary suggests he may be partly right this time. Margin lending has fallen, and trading flowing north through the Stock Connect program with Hong Kong has also dropped. Those signals point away from leveraged domestic speculators and overseas money as the main cause.

That leaves long-only institutional investors in focus. Chinese state insurers have gradually built up their share holdings over recent years. China Life Insurance has expanded its artificial intelligence exposure, and as of the end of June its equity portion stood at 19.2 per cent of its investments, against 16.9 per cent during 2025.

Policy pressure on insurers

Officials have urged insurers to commit more money to shares over the long haul, and the head of the securities regulator repeated that message in a widely noticed speech in mid-June. Authorities have now sent window guidance to several large insurers. Those firms are being required to disclose their stock positions, avoid locking in losses, and tie their investment choices to wider economic objectives.

CNA argues that the government may now be facing a side effect of its own policy. Insurers must still manage risk and pay out claims, which means they cannot keep holding losses indefinitely. In severe downturns they may be forced to sell. Unlike the national team, which exists mainly to stabilise the market, insurers cannot be counted on to push against the cycle.

The results reflect the strain. During a recent earnings call, China Pacific Insurance Group’s leadership described equity investing as “complicated”. Third-quarter earnings fell steeply at the five largest listed insurers in China, mainly because domestic equities declined.

A repeating pattern

The domestic market has suffered at least three bear phases in the past decade that required emergency state support, in 2018, 2024 and now. Earlier this year, a July downturn hit momentum strategies harder than ever before. A similar wave appeared in South Korea and the US, where chip-sector bets were rapidly reversed.

The commentary observes that few people in China will openly say that official policy mistakes could be adding to the weakness. Blame has instead landed on weak liquidity and indiscriminate selling. The bigger question is what happens the next time the central bank has to intervene, and who will then take the fall.

Frequently asked questions

Sources

• CNA: Commentary: Who keeps crashing China’s stock market?

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