Chinese authorities are considering a package of measures to stabilize the slumping stock market, according to people familiar with the matter, after earlier attempts to restore investor confidence fell short and prompted Premier Li Qiang to call for “forceful” steps.

Policymakers are seeking to mobilize about 2 trillion yuan (US$278 billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link, said the people, asking not to be identified discussing a private matter. They have also earmarked at least 300 billion yuan of local funds to invest in onshore shares through China Securities Finance Corp. or Central Huijin Investment Ltd., the people said.

The deliberations underscore the elevated sense of urgency among Chinese authorities to stem a selloff that sent the benchmark CSI 300 Index to a five-year low this week. Calming the nation’s retail investors, many of whom have been bruised by the protracted property downturn, is also seen as key to maintaining social stability.

The formation of a state-backed stabilization fund has been contemplated since at least October, though some investors have raised doubts over its efficacy as Beijing’s previous rescue efforts haven’t always worked. China’s property crisis, depressed consumer sentiment, tumbling foreign investment and diminished confidence among local businesses after years of volatile policymaking are exerting pressure on both the economy and markets.

“The potential support package should be able to stem declines in the short term and stabilize markets into the Lunar New Year, but state buying alone has historically had limited success in turning around market sentiment if not followed up by further measures,” said Marvin Chen, a strategist at Bloomberg Intelligence.

Onshore Chinese shares pared an earlier rally to end just 0.4 per cent higher. A gauge of Chinese stocks listed in Hong Kong rose 2.8 per cent, easing from an intra-day gain of 4.1 per cent.  

Officials are also weighing other options and may announce some of them as soon as this week if approved by the top leadership, the people said. The plans are still subject to change. The China Securities Regulatory Commission didn’t respond to a request for comment.

At a State Council meeting on Monday, chaired by Li, China’s cabinet received a briefing on the operations of the capital markets as well as considerations for related work, according to an official statement, which didn’t provide more details on what Beijing is mulling. 

In all, more than $6 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021, underscoring the challenge that Beijing faces as it seeks to arrest a decline in investor confidence. 

Separately, regulators gave so-called window guidance to at least two state-owned insurance firms on Monday to refrain from selling more shares than they purchased. The nation’s largest brokerage Citic Securities Co. last week stopped short selling services for some clients after window-guidance from regulators, Bloomberg News has reported.

China’s piecemeal moves in recent months to boost market sentiment have been met with a large degree of despondency from traders, with some calling for more forceful stimulus. Beijing has restricted short selling and state funds stepped in to buy shares of big banks. 

“A rescue package may be insufficient on its own to prop up the market in terms of value injected, but will certainly help dispel the idea that the government doesn’t care,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

Confidence has also been hurt over the past years by President Xi Jinping’s growing control over private enterprise, which has included a crackdown on the country’s tech giants. International banks who were planning a massive expansion in the country are now tempering their ambitions to build platforms in the world’s second-largest economy. 

Kevin Sneader, president of Asia-Pacific ex-Japan at Goldman Sachs Group Inc., called for more consistency from authorities to restore confidence. 

“The question when you look at this package or any other set of actions, is how does it address that?” he said in interview Tuesday in Hong Kong on Bloomberg Television. “Does it change the sentiment? Does it give people reasons to believe in the future of the economy in a positive way?” he said. 

During the 2015 rout, Beijing tapped China Securities Finance Corp. as its main stabilization vehicle by allowing it to access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders. The money was used to buy stocks directly and provide liquidity to brokerages. Even so, the turbulence didn’t end until a year later.

This time, officials are seeking to use offshore money to minimize impact on an already weakening yuan, said the people. Bloomberg Intelligence estimated the rescue fund could further expand to $488 billion, assuming the size will be similar to 2015 when the “national team” deployed about 5 per cent worth of A-share market value, analysts led by Sharnie Wong wrote in a note. 

The stock meltdown is adding pressure on so-called snowball derivatives, which are structured products that promise bond-like coupons as long as the underlying assets trade within a certain range. The CSI Smallcap 500 Index, a pricing reference for some of these products, slipped 4.7 per cent on Monday, taking it below an earlier estimated threshold that may trigger widespread losses on the snowballs.