Intriguing Proposal: Chinese Think Tank Recommends a $280 Billion Market Fund

A policy think tank in China has proposed the creation of a stock stabilization fund backed by 2 trillion yuan ($280 billion) in special treasury bonds. This initiative comes from the Institute of Finance and Banking, part of the Chinese Academy of Social Sciences (CASS), one of China’s leading academic institutions. The purpose of the fund would be to stabilize the stock market by trading blue-chip stocks and exchange-traded funds (ETFs). This proposal was included in the institute’s quarterly report on the state of the Chinese economy. It remains unclear how this suggestion will influence government policy.

Last month, Pan Gongsheng, the governor of China's central bank, acknowledged that the proposal for a stock stabilization fund was under review. Recent policy stimuli in China have led to a significant rally in the stock market, with blue-chip stocks rising approximately 24% over the past month. However, in recent weeks, initial enthusiasm has given way to a more cautious approach.

In addition to the stabilization fund, the Institute of Finance and Banking advocated for increasing investments from long-term capital sources to further stabilize the market. Recommendations include raising the investment caps for insurance companies and the national pension fund in the stock markets.

The Chinese government has already implemented policies to boost institutional investment in stocks. For example, last Friday, the People’s Bank of China (PBOC) launched two financing schemes to provide up to 800 billion yuan to the stock market. These plans aim to ease access to liquidity for stock purchases by brokers, insurers, and asset managers. Additionally, publicly traded companies and major shareholders will be able to obtain low-interest loans from the PBOC for share buybacks and increasing their holdings.