SHANGHAI, June 14 - The Chinese government is considering creating a $15 billion fund to help bail out the nation's ailing stock market, according to a senior government official and people told of the proposal.
The creation of a huge fund to invest in mainland stocks would be the government's most striking effort yet to prop up share prices and try to restore confidence in a market that has fallen to its lowest level in about eight years.
The proposal comes at a time when China's economy is sizzling hot, but the nation's Communist Party leadership is struggling to fix a stock market that has been broken for several years.
The Shanghai and Shenzhen stock exchanges, where about 1,400 state-owned companies are listed, are each down 40 to 50 percent from the highs they reached in 2001. In recent months, struggling brokerage houses and large investors have been aggressively lobbying for a government bailout fund.
Government bailouts have a weak track record, however, and the proposed support is unlikely to nurse the growth of the capital markets here. When authorities in Hong Kong and Tokyo stepped in to aid their local stock markets, the moves only provided a short psychological lift and failed to produce a sustained turnaround.
Analysts say the government is considering the huge bailout proposal because the market has fallen so sharply in the last year that some government officials fear a bigger drop could seriously impede the long term development of China's financial markets.
Indeed, China's weak system for raising money and putting it to profitable use is not just hurting investors and state-owned companies, experts say. At the heart of the problem is that private companies, which have a much better track record, are not allowed to list on the Chinese stock exchanges.
"China needs a healthy capital market," said Zhou Chunsheng, a professor of finance at Guanghua School of Management at Beijing University. "Traditionally state-owned companies found it easy to get financing from state-owned banks. But now we have more small businesses and private businesses. And they have to find ways to get financing."
Some Chinese officials say they are motivated in part from fears that huge and mounting investor losses could also create social discontent among the millions of people who began buying shares in the early to mid-1990's, when stock prices were climbing.
While it is not clear whether China's leadership will ultimately approve the bailout proposal, expectations that the government is about to act helped lift share prices last week in one of the biggest one-day rallies in three years. ...
-- Jim Devine "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.