China eyes market stabilisation fund amid trade uncertainties

[WORLD] China has the financial capacity to create a market stabilisation fund, backed by its robust economy and substantial foreign exchange reserves, according to an article published in Study Times, the official journal of the Communist Party’s Central Party School. The piece underscores the importance of bolstering market stability amid growing global uncertainty driven by escalating trade tensions, particularly those linked to former U.S. President Donald Trump’s trade policies.

The proposal comes as financial markets worldwide experience increased volatility due to the intensifying U.S.-China trade dispute. Analysts suggest that a stabilisation fund could serve as a buffer against external shocks, helping Beijing to restore investor confidence as economic growth slows and stock markets remain turbulent. Similar tools have been used effectively in other economies, most notably during Hong Kong’s intervention in 1998 to fend off speculative attacks during the Asian financial crisis.

“In a time of global economic instability with growing uncertainties, the establishment of a stabilisation fund can help maintain the stability of the capital market, protect the interests of small and medium-sized investors, and guard against systemic financial risks,” the journal stated.

The initiative aligns with broader efforts by Chinese authorities to deepen financial market reforms and enhance risk management. Recent regulatory developments, such as the launch of the Stock Connect schemes and the ongoing liberalization of the bond market, have aimed to attract foreign capital while preserving financial oversight. A stabilisation fund could complement these initiatives by acting as a safeguard during periods of market stress, supporting capital flow stability and curbing panic-driven selloffs.

The article, published Wednesday, also emphasized that China’s growing regulatory capabilities make it feasible to ensure the efficient and disciplined operation of such a fund.

Experts point to China’s extensive foreign exchange reserves—totaling more than $3 trillion as of late 2023—as a key asset underpinning the viability of the fund. Nonetheless, they note that its effectiveness would depend on transparent governance frameworks and strict operational guidelines to prevent potential misuse or market distortions. Historical precedents suggest that while such funds can be powerful tools, they must be deployed with caution to avoid moral hazard or excessive state intervention.

The discussion reflects a broader strategy by Beijing to proactively safeguard financial stability ahead of possible further trade disruptions. With the upcoming U.S. election injecting fresh uncertainty into bilateral ties, Chinese policymakers appear to be preparing contingency measures to cushion the domestic economy. A market stabilisation fund, in this context, would not only serve a functional role but also signal China’s resilience to global investors.