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Official, experts urge govt to launch buffer fund

(Xinhua)
Updated: 2008-11-10 21:43

Former Chairman of China Securities Regulatory Commission Zhou Zhengqing openly suggested thrice in ten days that the country should launch a buffer fund to correct what he called the irrational fluctuation of the domestic stock market.

Related readings:  Stocks up 5% in response to huge stimulus package  Official: Launch of buffer funds is necessary  Recession specter haunts markets  China scraps interest tax on stock account balance

"The current market slump falls out of line with the country's economic development, which remains on a healthy track. It's time the government take effective measures to secure the investors' confidence as well as stabilize the market," said Zhou in a latest speech concerning the buffer fund on Sunday.

Zhou, also vice director of the Financial and Economic Committee under the 10th National People's Congress, said governmental intervention is necessary as many problems could not be solved by financial markets alone.

The buffer fund, also known as the intervention fund, is a kind of state-raised fund used to rescue the stock market from irrational performances, such as a nosedive in share prices or overheating.

In 1998, Hong Kong authorities successfully used a buffer fund to protect its stock market from a nosedive, through buying shares sold by international investors.

Experts showed support for Zhou's advice. Cao Fengqi, head of Research Center for Finance and Securities of Peking University, said former governmental policies turned out to be not strong enough to stabilize the market.

"To launch a buffer fund is the only effective way to rally market confidence," Cao said.

While advocating the idea of the buffer fund, he further clarified several fund sources, such as foreign exchange reserves, governmental finance and national bonds.

A report submitted at the end of October by the Research Center of International Finance with Chinese Academy of Social Sciences contained even more specific suggestion concerning the buffer fund issue, according to Monday's China Securities Journal.

The government should establish a buffer fund worth 600 billion yuan ($87.85 billion) to 800 billion yuan to purchase 50 heavyweight stocks on the market before Chinese shares fall to 1,500 points, the report said.

Chinese shares jumped 7.27 percent, or 127.09 points, to finish at 1,874.80 on Monday, spurred by the country's 4 trillion yuan plan unveiled over the weekend to sustain its economy.

The index, however, was still 71 percent lower than its record high in mid-October last year.