Heading into the Lunar New Year this weekend, Chinese officials are increasingly concerned about poorly performing stocks. Will they make the necessary stimulatory moves?

Have we reached the China bottom?

That’s what I asked my fund-manager friend yesterday as Chinese equities surged. The blue-chip CSI 300 index jumped 3.5% to post its biggest one-day gain since November 2022. He thinks we must be there.

In Hong Kong, the Hang Seng Index soared 4.0%, its biggest gain since last July. Tech stocks led the way, up 6.8%, and the Hang Seng China Enterprises Index of mainland businesses listed in Hong Kong rallied 4.9%.

There are several drivers, which certainly leave investors with plenty to ponder as many Asian markets take a Lunar New Year break. But I’m not entirely convinced they justify a sustained rally.

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What’s driving the optimism? Essentially, it revolves around the extent of the Beijing government’s concern that equity markets have fallen so far, for so long, that it constitutes a threat to social stability.

Driver 1 is that Central Huijin Investment, a subsidiary of the US$1.2 trillion Chinese sovereign wealth fund, said on Tuesday that it is increasing its investment into exchange-traded funds for Chinese A shares. It didn’t disclose how much it has invested but says the buying has already begun, with more to come “to resolutely safeguard the stable operation of the capital market,” according to state news service Xinhua.

Driver 2 is that the stock watchdog, the China Securities Regulatory Commission (CSRC), says it will support Central Huijin’s efforts. It will also “coordinate and guide” other institutional investors, both state-backed and private, “to enter the market more vigorously.” It will also encourage listed companies to buy back their own shares.

Driver 3 is that regulators plan on running their concern about financial markets right up the flagpole, to the very top. Officials from the CSRC, China’s equivalent of the U.S. Securities and Exchange Commission, plan to brief Chinese President Xi Jinping about the need for “forceful” measures to support the market, according to a Bloomberg report.

It’s not clear what if anything would come of such a briefing. Xi is nicknamed “The Core,” such is the centrality he has ensured for himself in party politics, and everyday Chinese life. But he has previously hewn to decidedly Marxist-Leninist tactics, and prefers a centralized command economy in which the Chinese Communist Party comes first, state-owned enterprises second, and the private sector comes third.

It was the targeting of successful entrepreneurs and Big Tech, followed by efforts to rein in the property industry, that started this market downturn. The Chinese Communist Party is, fundamentally, suspicious that the private sector can pose a threat to its supremacy.

Mainland markets are coming off fresh five-year lows set on Friday, while Hong Kong stocks are half the value of their first post-Covid rally in February 2021. Since early 2021, around US$7 trillion has been wiped off the market capitalization of Chinese companies.

While there have been frequent efforts by officials to talk the market back up, so far they have met with little success. Government ministries have also responded with strictures telling analysts to avoid negative commentary. Social-media posts about the markets are also censored and scrubbed from the Internet if they gain traction.

This led to a strange situation where an innocuous U.S. embassy post about efforts to combat giraffe poaching in Namibia using GPS technology became an impromptu graffiti wall lamenting the state of stocks and the economy in China, soliciting 166,000 posts.

There has been concrete but piecemeal action to support the stock market. The CSRC this week announced curbs on securities lending intending to make it difficult to short stocks, while the stock watchdog has vowed “zero tolerance” in targeting malicious short sellers. Securities cannot now be re-lent, a practice that brokerages used by borrowing shares then lending to clients for short sales. Securities lending is already down 24%, the CSRC says.

But these have been tweaks around the edges, and tinkering with how the markets operate does not change fundamentals. Slower economic growth of 3% to 4% “is here to stay” for China, the New York-based think tank Rhodium Group says in a new commentary.

It notes that China’s market-support efforts in 2023 already involved ETF purchases by Central Huijin as well as state-owned China Reform Holdings Corp. The CSRC slowed the pace of new stock listings, tightened rules on share sales by large shareholders and even, late in the year, briefly stopped mutual fund managers selling more shares than they bought. Stamp duty on stocks was halved, brokerage handling fees cut, margin requirements lowered…

These are artificial measures to shape supply, demand and prices for shares, the commentary notes, “administrative solutions to stock exchange problems.” It will require less control over private capital for markets to truly reform and recover.

So, even if there is a high-level meeting between stock-market regulators, officials and Xi, the outcome will likely be more pep talk, more tinkering with market function, but little to boost company fundamentals and stimulate the economy. China appears at a loss as to how to turn a lack of confidence around.

And indeed, while mainland stocks enjoyed a second day of gains for Wednesday, with the CSI 300 adding another 1.0%, Hong Kong stocks saw a little selling, ending Wednesday down 0.3%.

China bellwether Alibaba Group HK:9988 and (BABA) added 7.6%, not quite fully reflected in Tuesday’s showing on Wall Street, where it advanced 4.8%. The stock ended the day down 1.5% on Wednesday in Hong Kong.

Surely we cannot have far farther to fall in Chinese equities. But Tuesday’s rally does little to reassure investors. The selling has been longest and hardest in Hong Kong, where it’s easy for international investors to buy and sell. We have a couple more days of trade to see if there really are green shoots taking hold suggesting a longer-term rally.

We are heading into the Lunar New Year, and the Year of the Dragon, which will start on Saturday. Markets in mainland China will break at the close on Thursday, and remain shuttered all of next week, making Feb. 19 their next day of action.

In Hong Kong, trading also ceases on the eve of the new year, Friday, although markets will be back in action next Wednesday, Feb. 14.

Taiwanese stocks – one of last year’s success stories, with a semiconductor-driven 26.8% advance for 2023 – have already broken for the holidays, inching ahead 0.2% on Monday before the break. They resume on Thursday, Feb. 15.

Vietnam and South Korea also honor the Lunar New Year, with markets closed as of Thursday in Hanoi and Ho Chi Minh, and as of Friday in Seoul. Korean trade kicks back into gear on Tuesday, Feb. 13 with Vietnamese action resuming two days later.

There’s plenty to ponder as East Asia breaks for food and family gatherings. How markets shape up when trading resumes will depend on the direction of company profits and the overall Chinese economy, far more than administrative measures attempting to game an upward move.