China official, experts urge gov't to launch buffer fund for stock market

Special Report:Global Financial Crisis

BEIJING, Nov. 10 (Chinese media) -- 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.

"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 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

(585.98 billion U.S. dollars) 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.