China intends to create a stabilization fund to support the stock market

The Chinese authorities are considering the possibility of creating a stabilization fund to support the national stock market.

China's financial supervisory authorities, including the Securities Regulatory Commission (CSRC), have held several consultations with market participants in recent months and have already submitted an initial plan for discussion to the Chinese government. It is assumed that this stable fund will have a capital of hundreds of billions of yuan.

This year, the Chinese government has taken a number of measures to support the stock market, including reducing transaction fees and stamp duties for securities purchase and sale transactions. Despite this, the CSI 300 index recently fell to the lowest in the last 11 months, showing a 37% decline from the peak of 2021.

«The main problem in the Chinese stock market is the lack of investor confidence in the country's economic growth. The creation of a stable fund may not solve this issue. In the worst case, the fund's interventions will provoke speculative trading,» says Shen Meng, director of the investment bank Chanson & Co in Beijing.

Recently it became known that the Chinese sovereign wealth fund Central Huijin Investment has increased its shares in four leading banks in the country, for the first time since 2015. Market participants took this news as a sign of increased support for the economy and the stock market from Beijing.

Recall that during the market crisis in 2015, Beijing provided the state-owned company China Securities Finance Corp. access to resources of 3 trillion yuan (about $410 billion) to buy shares and ensure the liquidity of brokers. Nevertheless, the instability in the market continued until the end of 2016.