In Depth: Will a Stabilization Fund Prevent a Prolonged China Stocks Slump?

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History shows that a stabilization fund can play a role in containing a slide in the stock market over the short term, but in the long run, the direction of the market still depends on economic fundamentals. Photo: VCG

Premier Li Qiang last month called for “more effective measures” to stabilize the stock market as the Chinese mainland’s benchmark CSI 300 Index hit a five-year low. The premier didn’t specify what these measures would be, but the market focus has been on a government-funded stabilization fund to buy stocks directly.

Investors and analysts are divided on how effective such a fund would be. Some suggest that verbal support from the government is not enough to boost the market and it is time for it to directly influence the market with real money.