China think tank proposes $280bn stock market stabilisation fund

A renowned Chinese policy think tank has recommended the establishment of a massive 2 trillion yuan ($280 billion) stock market stabilization fund to be financed by special treasury bonds.

The proposal, outlined in a quarterly economic report by the Institute of Finance & Banking, affiliated with the prestigious Chinese Academy of Social Sciences (CASS), calls for the fund to actively engage in buying and selling blue-chip stocks and exchange-traded funds (ETFs) to curb market volatility.

While CASS holds significant influence as China's leading academic organization, it remains unclear whether this proposal will be adopted by policymakers. However, it highlights the ongoing efforts to address concerns about market stability after a period of intense fluctuation.

Last month, People's Bank of China (PBoC) Governor Pan Gongsheng revealed that authorities were studying the feasibility of a stock m arket stabilization fund. This followed a period of significant volatility in Chinese equities, which saw a furious rally triggered by recent stimulus measures give way to renewed caution among investors.

Beyond the proposed stabilization fund, the Institute of Finance & Banking also recommended policy adjustments to encourage greater long-term investment in the stock market. These suggestions include raising the ceiling on stock investments by insurance companies and the national pension fund.

China has already taken steps to channel more institutional capital into equities. Just last Friday, the central bank launched two new funding schemes designed to inject up to 800 billion yuan into the stock market by providing brokerages, insurers, and asset managers with easier access to liquidity for share purchases.

Additionally, listed companies and their major shareholders will have access to favorable lending terms for share buybacks and holding increases.