China’s capital market has been declining in recent years, depleting investor confidence. China must learn from developed countries to restore market confidence, Chen Zhilong, professor and researcher at the Changjiang Industrial Economy Think-Tank, Nanjing University, wrote for financial news portal yicai.com.
China’s stock market leaves little room for retail investors to make a profit and has not grown in proportion with its GDP. This continued underperformance fails to energize domestic demand, Chen explained. Low share prices attracted more than US$44 billion of net inflow of overseas capital, a record high, in 2018.
We should boost market confidence and fix the capital market, Chen wrote, adding the goal should be to build a sound Chinese capital market to match its economy.
Since last October, China’s leadership has started a slew of mechanisms to tackle issues in its capital market. For example, during the two trading days leading up to the Spring Festival, securities regulators encouraged brokers to buy stocks to soothe market concerns, he added.
But China can learn from Japan and the US and set up its version of the Plunge Protection Team, Chen said. It can establish a stabilization fund by combining several funds to inject liquidity and confidence in the market when necessary.
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