On October 23, 2024, the Institute of Finance and Banking, a Chinese policy think tank, proposed a significant initiative to stabilize the country's stock market by issuing 2 trillion yuan (approximately US$280 billion) in special treasury bonds. This proposed stock market stabilization fund aims to enhance capital market stability by actively buying and selling blue-chip stocks and exchange-traded funds (ETFs) [d72e43c9].
This proposal is part of a quarterly economic report and comes in the wake of China's third-quarter GDP growth report, which showed a slowdown to 4.6%, raising concerns about weakening consumer demand and declining property values [d72e43c9]. In light of these challenges, the People's Bank of China (PBOC) has been exploring the establishment of a state-backed stabilization fund, as indicated by PBOC governor Pan Gongsheng, who mentioned that a study of the proposal is currently underway [d72e43c9].
The recent surge in global stock markets, particularly in China, was initially driven by the announcement of new fiscal stimulus measures, including guidelines for state banks to provide loans for stock repurchases at a maximum interest rate of 2.25% [7b07d70c]. Following these measures, the CSI 300 Index saw a notable increase of 3.62%, while the Shanghai Composite Index rose by 2.9% [27c732d1]. Over the past month, blue-chip stocks have gained approximately 24% due to these policy stimuli [d72e43c9].
As the PBOC continues to implement supportive monetary policies, analysts are optimistic that the proposed fund could attract long-term investments from insurance companies and improve coordination between financial institutions and the central bank [d72e43c9]. However, despite the positive outlook, experts caution that volatility may persist in mainland China's stock exchanges, as the CSI 300 Index has experienced fluctuations amid ongoing economic uncertainties [16636fdc].
Overall, the combination of the proposed stabilization fund and existing fiscal measures is expected to create a more favorable environment for investors, contrasting with the challenges faced in mainland markets [b62128f5]. The global market reaction has been positive, with U.S. markets also reaching record highs, further buoyed by retail sales growth and the European Central Bank's recent interest rate cut [27c732d1].