China Equities: Policy Shift Strengthens the Case for Recovery

China’s equity market is transitioning into a mature, policy-supported phase as we approach the end of Q1 2026. After years of structural rebalancing, the “Policy Pivot” of late 2024 has evolved into a robust legislative and financial framework designed to underpin long-term growth and investor confidence.

The New Legal Baseline: Private Sector Promotion Law

A defining milestone for 2026 is the full implementation of the Private Sector Promotion Law, which officially took effect on May 20, 2025. Unlike previous temporary guidelines, this foundational law:

• Codifies Equal Treatment: Legally mandates that private enterprises receive the same treatment as State-Owned Enterprises (SOEs) in market access, financing, and legal protection.
• Restores Entrepreneurial Confidence: Explicitly protects the property rights of private business owners and the innovative autonomy of firms in high-growth sectors.
• Institutionalises Growth: Positions the private sector – which still drives over 80% of urban employment – as a permanent pillar of China’s “High-Quality Development” strategy.

Monetary Backstops and Liquidity Tools

To ensure capital market stability, the People’s Bank of China (PBOC) has integrated the RMB 800 billion liquidity facility into its standard toolkit.

• Support for Buybacks: These tools enable institutional investors and listed companies to access low-cost liquidity specifically for share buybacks and equity holdings.
• 2026 Policy Stance: PBOC Governor Pan Gongsheng recently signaled a “moderately loose” stance for 2026, with room for further Reserve Requirement Ratio (RRR) and interest rate cuts to maintain ample market liquidity.

Structural Realignment: Beyond the Property Drag

While the property sector remains in a multi-year transition, 2026 sees a clearer “new development model.” Policy is now focused on:

• Inventory Digestion: Government-backed acquisition of unsold stock for affordable housing.
• Urban Renewal: A massive push toward upgrading aging urban infrastructure as part of the 15th Five-Year Plan (2026–2030).
• Innovation Engines: Strategic capital is flowing decisively into AI, semiconductors, and the “New Three” (EVs, Lithium batteries, and Renewables), which are increasingly offsetting the traditional drag from real estate.

Market Access and Exposure Opportunities

For investors in Singapore and globally, several liquid instruments provide targeted exposure to these themes.

1) ETFs

• iShares MSCI China ETF (NASD: MCHI)
• Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST)
• Phillip-China Universal MSCI China A50 Connect ETF (SGX: MCN)

2) Representative Companies (SDRs)

• Alibaba Group (SGX: HBBD)
• BYD Company (SGX: HYDD)
• Contemporary Amperex Technology (SGX: HCCD)
• Tencent Holdings (SGX: HTCD)

Looking Ahead: The 2026 “Two Sessions”

As the “Two Sessions” in March 2026 approach, markets are pricing in a GDP growth target of around 5%. While external trade pressures persist, the combination of a legal “floor” for the private sector and a central bank “backstop” for liquidity creates a more constructive environment for disciplined, long-term equity allocation.

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