Who keeps crashing China’s stock market?

• By Shuli Ren / Bloomberg Opinion

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China is scrambling to contain a stock-market rout only two years after the previous rescue.

Beijing is dusting off the market-support playbook it deployed in 2024. The People’s Bank of China is providing low-cost funding for corporate share buybacks and liquidity for institutional investors. The shadowy “national team” appears to have stepped up its operations, while regulators are again resorting to window guidance — informally instructing institutional investors and brokerages not to sell.

Last month, China’s stock market saw its worst monthly decline in more than a decade. The blue-chip CSI 300 Index has fallen into a bear market from its late-June peak, while Shanghai’s semiconductor-heavy SSE Science and Technology Innovation Board 50 Index, or Star 50, has plunged as much as 48 percent.

So who has been selling? The blame game has already begun. Shiva Capital Group, one of China’s biggest hedge funds, has pointed the finger at insurers.

Founder Hong Liang (梁宏) in a letter to clients said insurance firms were piling into technology stocks near their July peak, only to slash positions in late September.

The behavior was “truly baffling,” said the prominent investor, who has a large following on the mainland.

Liang certainly has reason to deflect blame. China has a long history of faulting private-sector investors, from quant funds to foreign asset managers, for igniting selloffs, but he might just have a point this time.

China had already endured a bear market in July, when momentum-driven trades reported their worst loss in history. The pattern mirrored markets in South Korea and the US, where the red-hot semiconductor trade was hastily unwound. However, three months later, the usual suspects are harder to blame. Margin financing has already fallen, as has northbound turnover through the Stock Connect with Hong Kong, suggesting that neither leveraged traders nor foreign hot money is behind the latest weakness. That leaves a different potential offender: long-only institutional investors.

State-owned insurers have been steadily increasing their stock holdings over the past few years. China Life Insurance Co, for instance, has scaled up artificial-intelligence-related bets and raised its equity allocation to 19.2 percent of its portfolio by the end of June, from 16.9 percent last year. Beyond the hunt for higher returns, insurers have been responding to policymakers, who want them to provide more long-term capital to the stock market — a priority that the head of China’s securities regulator reiterated in a high-profile speech in mid-June. Talk about bad timing.

Over the past few days, authorities have issued window guidance to several major insurers, requiring them to report their equity holdings, refrain from cutting their losses and align investment decisions with broader economic goals.

The government now appears to be grappling with an unintended consequence of its own policy. Insurers might be more patient investors than hedge funds, but they still have to manage risk and meet claims and other liabilities. That limits their ability to sit indefinitely on mounting losses — and can force them to cut exposure during severe market downturns. Insurers, in other words, cannot be as reliably countercyclical as the “national team,” whose primary purpose is market stabilization.

On its latest earnings call, executives at China Pacific Insurance Group Co acknowledged that equity investing had become “complicated” and that portfolios needed to be managed so market volatility did not damage short-term returns. In the third quarter, profits at China’s five major listed insurers plunged, largely because of the decline in domestic stocks. The experience points to an uncomfortable reality: For insurers, reliable dividend payers such as Bank of Jiangsu Co might5 ultimately be better suited to their liabilities than capital-intensive chipmakers.

Few in China — including Liang — are willing to say publicly that policy missteps themselves might be contributing to poor stock-market performance. Instead, blame has fallen on everything from thin liquidity to indiscriminate selling.

However that raises a bigger question: Why does China keep suffering stock-market routs? Over the past decade, the domestic market has endured at least three bear runs that prompted emergency government bailouts — in 2018, 2024 and now.

The next time the People’s Bank of China has to put out a fire, who would be left to blame? Foreigners, hedge funds and now even state-owned insurers have all had their turn.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She is a CFA charterholder. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.