Home Business and Economy China’s Jaw-Dropping Solution to Boost Economic Confidence: Introducing Stock Stabilisation Fund!

China’s Jaw-Dropping Solution to Boost Economic Confidence: Introducing Stock Stabilisation Fund!

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China’s Jaw-Dropping Solution to Boost Economic Confidence: Introducing Stock Stabilisation Fund!

China Proposes Stock Market Stabilisation Fund to Boost Investor Confidence

China’s financial sector authorities have put forward a proposal to establish a stock market stabilisation fund in an effort to restore confidence among domestic investors. This comes as new data reveals that the recovery of the Chinese economy remains fragile.

The plan, currently under consideration by Beijing, involves investing in domestic equities through existing financial institutions and managed funds. The government’s investment would be matched by partner funds and institutions.

The proposal has been submitted to the State Council, China’s cabinet, which will ultimately decide on the operational details of the fund.

Raising at Least Rmb1tn for an Effective Solution

Experts familiar with the proposal argue that the fund needs to raise a minimum of Rmb1tn ($137bn) in order to have a significant impact on the market and boost investor confidence.

The idea of creating a stabilisation or intervention fund has been discussed among regulators since 2015, but gained momentum this year.

China’s Struggle to Restore Confidence

In recent years, Beijing has faced challenges in rebuilding confidence in China’s capital markets and overall economy, largely due to the property market crisis and declining foreign trade brought on by the pandemic.

A new data release indicated that China is edging towards deflation, with the consumer price index remaining unchanged compared to the previous year. The producer price index, which measures the price of goods sold by manufacturers, also experienced a decline.

While efforts have been made to stabilise the market, including a purchasing programme targeting top banks’ shares and restrictions on offshore trading accounts for domestic investors, the benchmark CSI 300 index has seen a decline of over 10% in dollar terms this year.

The Potential Impact of the Stabilisation Fund

The proposed fund aims to revitalise the entrepreneurial spirit and encourage new listings, creating a positive cycle that would boost confidence in the domestic economy. It would also increase the availability of risk capital.

The government adviser involved in designing the fund emphasised the need for a stock market boom to increase household wealth and drive consumer spending.

Chinese policymakers maintain that the economy is resilient and on track to meet the official gross domestic product target of 5% for this year. Official third-quarter GDP growth figures are set to be released next week.

Analysts, however, caution that while the economy is displaying signs of stability, the recovery remains fragile and further fiscal support is necessary to strengthen domestic demand.

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