The author is Chief Economist of Natixis Asia-Pacific and Senior Research Fellow of the think tank Bruegel

If the U.S. market rule is “don’t fight the Fed,” the traditional knee-jerk reaction of Chinese investors is to keep an eye on Beijing.underscore after last week’The move by the country’s top economic official is aimed at boosting confidence in the Chinese market.

Liu He, Vice Premier and close economic adviser to President Xi Jinping, made a rare public intervention to reassure investors. His comments to China’s Financial Stability and Development Board were a far cry from Mario Draghi’s “whatever it takes” speech in 2012 to reverse the euro zone crisis. But they responded immediately.

The CSI 300 index, which tracks the largest listed companies in Shanghai and Shenzhen, has risen 7% from its pre-comment lows. Hong Kong’s benchmark Hang Seng Index had its best day since 2008, rising more than 9.1%.

Clearly, Beijing has had enough of the heavy blow to China’s stock market since the beginning of last year. From its highs early last year, the CSI 300 had fallen by about a third before Liu Xiaobo intervened.

Investor confidence has been hit by Beijing’s crackdown on the private sector, especially thriving tech companies. Real estate developer Evergrande’s debt crisis has also sparked concerns about the real estate sector. Sentiment deteriorated sharply in the first half of March after a rapid increase in Covid-19 cases in major Chinese cities and the beginning of Russia’s invasion of Ukraine.

The problem for investors, though, is that it will be extremely challenging for China to implement Mr. Liu’s vague remedy. His comments were largely a reminder to investors of China’s stability goals, especially in a pivotal political year when Xi is expected to be re-appointed after a second term. But Liu also laid out three ways Chinese policymakers can help capital markets get back on track.

They are facilitating Chinese companies’ access to overseas capital markets; providing a “standardized, transparent and predictable” approach to the regulation of tech giants; and providing enough stimulus to achieve the 5.5% GDP growth that Premier Li Keqiang set a few weeks ago Target.

However, all three routes have obstacles. When it comes to overseas listings, the trickiest point is that the United States, following legislation passed in late 2020, requires the disclosure of detailed audit information of Chinese listed companies to regulators.SEC warn Last week it started delisting Chinese companies from the U.S. unless they complied. However, there are rumors that Chinese regulators may be ready to compromise and allow companies to comply with the demands.

For Liu, persuading the Chinese government may not be easy new regulator to ease the pressure they put on Chinese internet companies to limit their overseas listings. These include the Cyberspace Administration of China, which oversees Chinese internet companies, and the State Administration for Market Regulation, China’s anti-monopoly agency.

These regulators are also key to Liu He’s second problem, which is to provide a more predictable regulatory environment for Chinese internet companies at home. That goal, though, could run counter to the overall “shared prosperity” that Beijing promotes, as most of these internet companies are owned by billionaires who should continue to pay the price for excess market power.

Economic stimulus — another key part of Liu’s — should in principle be the easiest to achieve. But the stimulus announced so far is a far cry from what China has done in the past, especially compared with its massive fiscal plan in 2008 and even a more modest plan in 2016 after the stock market crashed in the summer of 2015. The People’s Bank of China may also believe that other policymakers need to do more before easing monetary policy further, especially given that the Federal Reserve is expected to raise interest rates sharply.

Against this backdrop, Covid cases continue to pile up in China, and lockdowns and other Covid-00-related policies continue to weigh on economic growth. The Ukraine war will also hit global demand for Chinese goods, while Beijing’s ambiguous stance in the conflict increases the risk of the country falling into Russia-related sanctions.

Liu’s argument can only be said to be immediate, but the long-term effect is difficult to achieve.