In a recent revelation, an expert affiliated with a state-backed research institution in China underscored the urgent need for a robust stabilization fund to revitalize the stock market. The proposed fund, targeting a whopping 10 trillion yuan (equivalent to $1.4 trillion), is poised to restore investor confidence and steer the market towards stability.
The Blueprint for Market Recovery
1. Initial Steps and Long-term Goals
The initial phase of this ambitious project, as outlined by Liu Yuhui from the prestigious Chinese Academy of Social Sciences, involves amassing a fund ranging between $300 billion and $500 billion. This substantial seed amount is envisioned as the cornerstone of a broader strategy to bolster the nation’s financial markets.
Liu, in an enlightening discussion with the 21st Century Business Herald, emphasized the need for the fund’s expansion in direct proportion to the valuation of China’s capital market. This strategic approach aims not only to fortify the market’s foundation but also to nurture its growth potential.
2. Government Measures and Market Reactions
In response to the market’s recent downturn, Chinese policymakers are reportedly devising a comprehensive rescue package. This initiative, aimed at arresting the market’s decline, seeks to channel approximately 2 trillion yuan. These funds, primarily derived from overseas holdings of state-owned enterprises, represent a concerted effort to stabilize the fluctuating market landscape.
Addressing Liquidity and Intervention
1. Liquidity Concerns and the Role of the “National Team”
Liu, while sharing insights in his capacity as the director of the China Chief Economists Forum, highlighted the evident liquidity crunch plaguing the market. He pointed out the reliance on the “national team” – a colloquial term for state-affiliated entities often mobilized to purchase stocks during volatile periods. This team’s role has been pivotal in attempting to maintain market equilibrium.
2. A Transparent Approach to Market Stabilization
Liu proposes a paradigm shift from the conventional interventions by the national team. He advocates for the stabilization fund to operate as a transparent mechanism, distinct and more structured than the existing practices. This innovative approach aims to offer a sustainable solution to the market’s volatility, ensuring transparency and predictability in the stabilization efforts.
The call for a $1.4 trillion stabilization fund signifies a proactive step towards reinforcing the Chinese stock market. By addressing immediate liquidity issues and setting the stage for a transparent, systematic support mechanism, the proposal aims to instill confidence among investors and stabilize the market dynamics. As China grapples with the challenges of market fluctuations, the establishment of such a fund could mark a pivotal moment in its financial market’s trajectory.
Source: https://www.bnnbloomberg.ca/china-academic-calls-for-1-4-trillion-stock-stabilization-fund-1.2030491
