Local social security funds buying Chinese stocks feasible, says expert

In a recent interview with China Perspectives, Zhang Ming, deputy director of the Institute of Finance & Banking at the Chinese Academy of Social Sciences, said gradually expanding the proportion that provincial-level social security funds are allowed to invest in A shares is a feasible measure to channel more long-term funds into the market.

Provincial-level social security funds can leverage the low valuation of Chinese stocks and make low-price equity investments in industry leaders to establish long-term investment portfolios, said Zhang, who is also deputy director of the National Institution for Finance & Development.

The A-share market has recently experienced a correction with a decline in trading volume, triggering discussions of the next step for China to improve market liquidity and attract more long-term funds.

Zhang said that if the stock market suffers, China can set up a stock market stabilization fund by issuing government bonds worth at least 1 trillion yuan ($140 billion).

If the fund cannot stabilize the market, the country can learn from some developed countries such as Japan, where the central bank directly purchases exchange-traded funds or ETFs, he said. "We are not yet at that stage. We still have many other solutions."