China's stock market rescue packages' impact muted

The Chinese government is having a "whatever it takes" moment with the stock market.

Numerous rescue measures have been announced by various government departments in the past week. Nearly all the nonbank financial institutions have been called to stabilise the market and even the PBoC has pledged to provide liquidity indirectly.

At the time of writing, the impact on the market remains muted and so more resources will probably be ramped up for the battle in the coming days, noted Societe Generale.

While, there is some sense of urgency to calm investors, we are concerned by two potential side effects. First, shifting the equity market risk from retail investors to financial institutions creates moral hazard problems and potentially increases systemic risk. Second, measures such as restricting short selling and halting market trading might only delay risk from being exposed and could cause risk spill-over to other parts of the financial market and lead to more panic afterwards. The more critical test to Chinese policymakers is to continue with capital market reform.

"Otherwise, it would be a big cost to the long-term prospects of the real economy," added Societe Generale.