China think tank proposes $280 billion stock market stabilisation fund

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, the 21st Century Business Herald reported on Wednesday.

Such a fund could steady the market through buying and selling blue-chips and exchange-traded funds (ETFs), according to the proposal by the Institute of Finance & Banking, affiliated to the Chinese Academy of Social Sciences (CASS).

The proposal is part of a quarterly report by the institute on China’s economy. CASS is China’s premier academic organisation, although it was unclear if or how the proposal would influence policy.

When asked about the potential setup of a stock market stabilisation fund last month, China’s central bank chief Pan Gongsheng told reporters a study of the proposal was under way.

China’s recent policy stimulus has triggered a furious rally in stocks, though that euphoria has turned into caution in past weeks. Blue-chip stocks have gained roughly 24% over the past month.

The Institute of Finance & Banking also proposed more investment by long-term capital to steady the market, according to the newspaper. For example, China could raise the ceiling of stock investment by insurance companies and the national pension fund, the think tank proposed.

China has already introduced policies to encourage institutional stock investment.

Last Friday, China’s central bank kicked off two funding schemes that will initially pump as much as 800 billion yuan into the stock market.

Under the facilities, brokerages, insurers and asset managers can have easier access to liquidity for share purchases, while listed companies and their major shareholders can tap cheap PBOC lending for share buybacks and holding increases.