China Considers Major Stock Market Stabilization Fund Amid Fluctuations
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Proposal for a 2 Trillion Yuan Fund to Stabilize Markets
A well-respected Chinese policy think tank is advocating for a substantial 2 trillion yuan ($280 billion) stock market stabilization fund. This initiative would be funded through special treasury bonds, according to a report by Reuters.
Buying Blue-Chip Stocks to Combat Volatility
The recommendation comes from the Institute of Finance & Banking, which is affiliated with the renowned Chinese Academy of Social Sciences (CASS). The proposed fund would actively engage in buying and selling blue-chip stocks and exchange-traded funds (ETFs) to help reduce market volatility.
Uncertain Future for the Proposal
While the proposal from CASS holds weight in China’s academic circles, its acceptance by policymakers remains uncertain. Nevertheless, it sheds light on ongoing efforts to stabilize the stock market following a period marked by significant fluctuations.
Recent Volatility and Central Bank Insights
Last month, the Governor of the People’s Bank of China, Pan Gongsheng, indicated that authorities were evaluating the viability of a stock market stabilization fund. This announcement came after a volatile period in Chinese equities, where a strong rally fueled by recent stimulus measures was met with growing caution from investors.
Encouraging Long-Term Investments
In addition to the stabilization fund, the Institute of Finance & Banking has suggested policy changes to promote long-term investments in the stock market. Recommendations include increasing investment limits for insurance companies and the national pension fund.
New Measures to Support Institutional Capital
China is already making moves to direct more institutional capital into equities. Recently, the central bank initiated two new funding schemes that aim to inject up to 800 billion yuan into the stock market, providing brokerages, insurers, and asset managers improved access to liquidity for purchasing shares.
Moreover, listed companies and major shareholders will benefit from favorable lending terms designed to facilitate share buybacks and equity ownership increases.
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