The Invisible Hand is a State Employee: A Chinese “National Team” that trades stocks

Professionals usually refer to the term “China’s National Team” when describing a group of  state-linked institutions to trade exchange-traded funds that allows authorities to influence broad market segments quickly, reversibly, and with limited formal announcements. For instance, entities such as the Central Huijin Investment Ltd. is backed by the Ministry of Finance - who operates on a large enough scale to move markets but not enough to be opaque to preserve deniability and flexibility. That is, they sit in a grey zone between fiscal authority and market participants, allowing the government to influence prices without formal directives. Central Huijin Investment Ltd. (Huijin) functions as the primary and most visible stabilisation arm in the equity market, particularly through large-scale trading of exchange-traded funds that track major indices. 

Supporting Huijin are a range of other state-linked institutions with more specialised mandates. China Securities Finance Corp. was established to backstop brokerages and played a central role during the 2015 market rescue by providing liquidity and purchasing equities. On the other hand, the State Administration of Foreign Exchange has historically channelled funds into domestic markets via state-controlled accounts and leveraging foreign-exchange reserves during periods of instability. According to Goldman Sachs, this group controls roughly 6% of onshore market capitalisation - which underscores the scale of influence without implying outright market domination.

China’s growing involvement in its stock market reflects a deeper transformation in how the state now thinks about growth, risk and economic legitimacy. This shift is occurring because the traditional engines that once stabilised the economy such as property development, credit expansion, and infrastructure spending are no longer capable of carrying that role. In particular, China has been suffering from falling house prices, while local governments are fiscally constrained. On the national level, debt level is also at an arguably “politically sensitive” point. Thus, Beijing has little choice but to elevate capital markets from the periphery of the system to its centre.

This approach of intervention can relieve pressure on the banking system by encouraging firms - especially in technology and advanced manufacturing, to rely more on equity financing instead of loans. For local governments, higher equity valuations of state-linked firms offer indirect fiscal relief without explicit budgetary intervention. Equity stability, in this sense, substitutes for policy space that has narrowed elsewhere.

The country’s equity market is overwhelmingly retail-driven, with individual investors accounting for the majority of daily turnover. Therefore, this approach also reflects a shift in how policy is transmitted. Instead of relying solely on interest rates or reserve requirements, the state increasingly uses market participation itself as a policy lever. By shaping behaviour rather than simply reacting to it, the state aims to prevent volatility from feeding back into consumption, investment decisions and political sentiment.

Notably, the tools used to achieve the Chinese government’s end goal are deliberately blunt. Trading broad-based exchange-traded funds allows authorities to influence entire segments of the market such as blue chips, technology stocks, or smaller-cap indices without singling out individual firms. Unusually large and synchronised ETF flows often act as a visible signal to investors that state actors are active. In some cases, communication alone becomes a stabilising force because rare public acknowledgements of trading activity can alter expectations and halt speculative momentum even before substantial capital is deployed.

Over short horizons, this strategy has proven effective. Periods of sustained intervention have coincided with markedly calmer markets, reinforcing the perception that China can enforce stability when it chooses to do so. Internationally, China’s actions are not without precedent. Governments in Japan, Hong Kong, South Korea, and Taiwan have all intervened in equity markets during periods of stress. What sets China apart is the scale and normalisation of such intervention. The willingness to mobilise vast resources reflects the great extent to which equities are now embedded in national economic strategy. Given the market’s sensitivity to policy intent, this signalling effect can stabilise prices with minimal actual capital deployment.

As technological rivalry with the United States intensifies, capital markets are increasingly seen as instruments of national competitiveness. Stable equity financing is critical for long-cycle investments in semiconductors or advanced manufacturing - meaning the sectors where returns are uncertain and time horizons are long. 

However, the national team strategy introduces a new set of trade-offs. Persistent intervention risks weakening market discipline by encouraging investors to infer implicit downside protection, even as authorities try to counter that belief by selling into rallies. In simpler terms, when the government intervenes in the stock market too often, investors may start to believe the state will not allow prices to fall too much. As a result, they take more risk, ignore fundamentals or buy during downturns assuming losses will eventually be cushioned by state action (i.e. market discipline is weakened).

For investors, the main and simple implication is that Chinese equities cannot be assessed solely through conventional financial analysis. Valuations, earnings, and growth prospects matter, but they are filtered through a layer of state intent that shapes both upside and downside. Understanding policy priorities - when volatility will be tolerated and when it will be suppressed, has become an essential part of analysing the market. In this framework, the “national team" is a structural feature of China’s evolving political economy.