Proposal for Stock Market Stabilisation Fund in China

SHANGHAI (Reuters) – A Chinese policy think tank has called for Beijing to issue 2 trillion yuan ($280 billion) of special treasury bonds to set up a stock market stabilisation fund, as reported by the 21st Century Business Herald on Wednesday.

Purpose of the Fund

The fund aims to steady the market through buying and selling blue-chips and exchange-traded funds (ETFs), based on a proposal by the Institute of Finance & Banking, which is affiliated with the Chinese Academy of Social Sciences (CASS).

This proposal is part of a quarterly report focusing on China's economy. CASS is a leading academic organization in China, though it's unclear how this proposal might influence actual policy.

Central Bank's Response

When asked about establishing a stock market stabilisation fund last month, China's central bank chief Pan Gongsheng stated that a study of the proposal is currently underway.

Market Trends

China's recent policy stimulus has led to a rapid stock rally, with blue-chip stocks gaining roughly 24% over the past month. However, this euphoria has shifted towards caution in recent weeks.

Additional Proposals

The Institute of Finance & Banking also suggested increasing long-term capital investments to stabilize the market. For example, China could raise the investment ceiling for insurance companies and the national pension fund.

China has already implemented several policies to promote institutional stock investment. Last Friday, the central bank launched two funding schemes that could initially inject 800 billion yuan into the stock market. Through these schemes, brokerages, insurers, and asset managers can access liquidity more easily for purchasing shares, while listed companies and their major shareholders can benefit from affordable lending for share buybacks and holding increases.