A major Chinese policy think tank has put forward a plan to create a 2 trillion yuan ($280 billion) stock market stabilization fund. This proposal, from the Chinese Academy of Social Sciences (CASS), aims to calm the country’s volatile financial markets by issuing special treasury bonds. The move comes as officials look for long-term solutions to boost investor confidence and ensure stability after a period of sharp price swings in the market.
A Direct Response to Market Swings
The recommendation for a stabilization fund follows a period of significant fluctuation in China’s stock market. While recent policy measures led to a rapid 24% rise in blue-chip stocks over the past month, this initial excitement has started to fade, replaced by a more cautious investor outlook.
The 21st Century Business Herald reported that the proposed fund would primarily focus on buying and selling major assets like blue-chip stocks and exchange-traded funds (ETFs). The main objective is to inject a steadying force into the market, managing the extreme ups and downs that have worried investors.
This proposal is part of a larger quarterly economic report from CASS, which is China’s top academic body for policy and economic research. It signals a high-level concern about the need for more robust measures to maintain market health.
How the Stabilization Fund would Work
The proposed fund is designed to act as a safety net for the market. Its core function would be to step in during times of high volatility. It could purchase key assets to stop sharp declines or sell them to prevent dangerous market bubbles from forming.
Pan Gongsheng, the governor of China’s central bank, has already confirmed that the idea of such a fund is being seriously considered. The central bank is actively studying how this mechanism could be used for significant market intervention during times of financial stress. This suggests that the proposal has strong backing and could move forward.
The fund would add liquidity to the market when it’s most needed, helping to smooth out rough patches. Here are the key details of the proposed fund:
| Feature | Description |
|---|---|
| Fund Size | 2 trillion yuan ($280 billion) |
| Funding Source | Issuance of special treasury bonds |
| Primary Target | Blue-chip stocks and Exchange-Traded Funds (ETFs) |
| Main Goal | Reduce volatility and boost long-term investor confidence |
Boosting the Role of Institutional Investors
Beyond creating a stabilization fund, the think tank also recommended giving larger institutional investors a bigger role in the market. The proposal suggests raising the current limits on how much insurance companies and pension funds can invest in stocks. This would bring more stable, long-term capital into a market often dominated by short-term retail traders.
This is not a new idea, as China has already been working to encourage more institutional participation. Recent government policies have included:
- Providing easier access to funding for institutional investors to buy stocks.
- Offering incentives for companies to buy back their own shares.
- Launching two new funding schemes from the central bank worth up to 800 billion yuan.
These measures are designed to shift the market’s foundation toward more predictable and steady investment flows from large, established firms.
A Coordinated Push for Broader Economic Stability
This proposal is part of a wider effort to support China’s economy, which is facing several headwinds. The country reported a 4.6% GDP growth in the third quarter of 2024, the slowest in over a year. The economy is under pressure from a struggling property market and weak consumer spending.
By stabilizing the stock market, policymakers hope to restore confidence, which could have a positive effect on the broader economy. The report from CASS emphasizes the need for better coordination between the central bank and other financial institutions.
If implemented, the stabilization fund would be a powerful tool for the government to manage market sentiment and provide support during uncertain times. The focus now shifts to how and when Beijing will put these recommendations into action, with the central bank’s ongoing studies suggesting that concrete steps may be taken soon.
