China eyes long-term funds to promote stable, sustainable capital market

BEIJING, Sept. 29 (Xinhua) -- China is intensifying moves to channel long-term funds into its capital market as part of the efforts to boost investor confidence and enhance market stability.

Central authorities recently issued guidelines to streamline the entry of medium- and long-term capital from social security funds, insurance funds and wealth management funds into the market.

The main measures contained in the guidelines include fostering a favorable long-term investment ecosystem, promoting the development of public and private equity funds, and improving related policies for medium- and long-term stock investment, according to the office of the Central Financial Work Commission and the China Securities Regulatory Commission.

Financial analysts have expressed widespread recognition of the value of these policies. Du Xingye, an associate professor at the University of International Business and Economics, emphasized the necessity of attracting long-term funds. Ming Ming, chief economist at CITIC Securities, believes the move will help build long-term confidence.

The entry of long-term capital can help reduce market fluctuations and enhance overall market stability as such funds typically possess well-structured research teams capable of discovering a company's value and executing long-term investment strategies, said Liu Xinyu, co-general manager of the public investment department of Rivers Fund, a public equity fund.

In recent years, calls for increasing long-term fund participation have intensified in China, and related measures have been introduced. However, while some progress has been made, an institutional environment friendly to long-term investment has not yet been fully established.

At the end of August 2024, institutional investors, including public equity, insurance and various pension funds, collectively held 14.5 trillion yuan (about 2 trillion U.S. dollars) of circulating A-shares. Their proportion of the total market value increased from 17 percent at the beginning of 2019 to 22.2 percent by August.

There is significant room for growth for long-term funds in the capital market, experts said, noting that the increasing participation of such funds, which feature higher professional standards and stability, will optimize the investor structure.

The latest guidelines achieved substantial policy breakthroughs in areas such as long-cycle assessment for funds, policy synergy and the building of a supportive market ecosystem.

A three-year long-cycle assessment mechanism for insurance funds and various pension funds will be established, and investment policies will also be improved for the national social security fund and basic pension insurance fund, according to the guidelines.

Problems in the current short-sighted assessment approach for funds are prominent, as the undue emphasis on short-term profit targets has overshadowed the importance of long-term metrics.

Wang Peng, an associate researcher at the Beijing Academy of Social Sciences, said the guidelines specifically address assessment challenges, thereby helping to reduce obstacles preventing long-term funds from flowing into the stock market.

Additionally, Pan Hongsheng, chief economist of the China Institute of Finance and Capital Markets, said the guidelines support institutional investors' participation in corporate governance, which will solidify the market foundation for long-term fund entry. It is crucial to create an ecosystem where long-term funds can "enter, stay and thrive," Pan added.

China's central bank, top securities regulator and financial regulator Tuesday announced a raft of monetary stimulus, property market support and capital market strengthening measures to boost the country's high-quality economic development.

The Political Bureau of the Communist Party of China Central Committee held a meeting on Thursday to analyze and study the current economic situation and make further arrangements for economic work.

The meeting called for efforts to boost the capital market, vigorously guide medium- and long-term funds to enter the capital market, and clear obstacles for social security, insurance and wealth management funds to invest in the capital market.

Thanks to the new measures, the investor confidence has improved significantly, with the stock market on an upward streak in recent days.

The benchmark Shanghai Composite Index closed at 3,087.53 points on Friday -- a 12.81 percent weekly gain. The Shenzhen Component Index soared 17.83 percent in the week to close at 9,514.86 points.

On Friday alone, the combined turnover of the two indices neared 1.45 trillion yuan, surpassing the 1-trillion-yuan mark for a third consecutive day.