Stabilisation Funds Needed to Save China’s Stock Market: Ren Zeping


Leading Chinese economist Ren Zeping (任泽平) has called for authorities to establish stabilisation funds worth hundreds of billions of yuan to help correct excessive price movements in China’s stock market. 

In an opinion piece published on Sina, Ren, chief economist at Zhongyuan Bank and deputy-head of the China Private Economy Research Association, pointed out that recent interventions by Chinese regulators had failed to stymie ongoing declines in share prices. 

“From August to October, regulators introduced favorable measures such as reducing stamp duties and restricting reductions in shareholdings,” Ren wrote. 

“This still failed to stop the stock market from falling, and it has recently hit new lows. If the stock market continues to fall, it will cause household wealth to shrink and drag down consumption and investor confidence. This warrants a high-level attention to prevent negative feedback.”

Prior to the launch of these measures, China’s central government reiterated the importance of maintaining the health of the domestic stock market to ensure the overall soundness of the economy. 

At a meeting held on 27 July, the Chinese Politburo highlighted the need to “invigourate capital markets and spur investor confidence” (要活跃资本市场,提振投资者信心). 

Ren points out that China’s stock market has developed to the point where its health can impact other parts of the economy, in particular household spending and consumer demand. 

“It is very important to stimulate the capital market, which will help with household wealth effects and stimulate consumption,” Ren writes. 

“This can drive production and investment, open up the national economic cycle, and will also play an important supporting role in promoting technological innovation and high-quality development.”

Stabilisation funds needed to save China’s stock market

In order to support the health of the ailing Chinese stock market, Ren has called for the establishment of stabilisation funds of at least several hundred billion yuan in scope.

“If the market falls below a key point, stabilisation funds can make an entry to rescue the market and act as a mainstay and anchor,” Ren writes. 

“At this point, valuations are low, and the entry of stabilization funds could help to underpin market confidence and promote value investing, which will reap substantial returns in the long run.”

Ren points to the precedent set by the use of state-run stabilisation funds in other parts of the world to correct excessive market swings. 

“There are many cases of stabilization funds in the world, which refer to funds established by the government through specific institutions in a lawful manner,” Ren writes. 

“These kinds of funds can achieve the goal of stabilizing the securities market through counter-operations on the securities market, such as buying when the stock market plummets irrationally, and selling when stock market bubbles are rampant and the speculative mood is exuberent.”

“The source of funding for the stabilization fund can come from sources such as state fiscal appropriations and levies from relevant units participating in the securities market.”

Fiscal stimulus needed to drive consumer demand

Given its role as a bellwether for the broader economy, Ren said that Chinese policymakers could also improve the health of the stockmarket via the launch of much-needed fiscal stimulus measures, particularly in relation to consumer demand. 

“Against the backdrop of shrinking domestic and foreign demand, it is imperative to expand aggregate demand through proactive fiscal policies,” he wrote. 

Ren calls specifically for the launch of a more than 10-trillion yuan economic plan to expand domestic demand, which could include the issuance of 3 trillion yuan in consumer coupons using China’s central bank digital currency (CBDC). 

“By means of the digital renminbi, consumers can enjoy discounts of 30-50 yuan with consumer coupons whenever they spend 100 yuan,” Ren wrote. “We can also increase support for families with elderly people and children using consumer vouchers, to reduce the cost of childbirth and childcare.”

Ren also called for the launch of an over-7 trillion yuan infrastructure plan, focusing in particular on new infrastructure, new energy and artificial intelligence. 

Special bonds would be the chief source of funding for the plan, with local governments providing ancillary financing via the use of state-owned land as collateral.

“Large-scale investment in new infrastructure will help expand domestic demand, stabilize growth, and stabilize employment in the short term, and help create new industries and new engines for the Chinese economy in the long term,” Ren wrote.

Corruption and lack of transparency remain problems

Ren said a long-standing reason for lack of confidence in the domestic stock market lies in ongoing problems with corruption, transparency, and lack of adequate investor protections. 

“In the past, the stock market was viewed as a market for listed companies to raise money and make money….certain companies regarded investors as ‘leeks’ and used various tricks to cut the leeks every day.

“This led to all kinds of strange operations. Many companies used various forms of financial whitewashing before going public, only to flounder a few years later.

“This has bred corruption and insider trading… for a long time, the volume of financing has been far greater than the volume of dividends, and a large amount of money has been extracted, which has definitely hurt investor confidence.”

Full overhaul of capital market regulation needed

In order to restore investor confidence, Ren said China’s handling of the stock market requires thorough-going, deep-seated change, including a fundamental shift in approach on top of stricter regulation. 

“In the future, the financial market must be completely conceptually changed, and the institutional design of the investment market must be established to allow investors to make money,” Ren wrote. 

“Listed companies that pay few dividends or have net losses must not reduce their holdings until the company is well-run, and financial fraud must be severely punished. It is also necessary to implement class actions to reduce the cost of defending the rights of small shareholders.

“If the market can develop in a full and healthy manner, then the regulatory authorities’ expectations of the capital market to support the real economy can be better achieved.”