Deepen China's Characteristic Market Stabilization Mechanism and Consolidate the Foundation of Market Stability

On March 13, Wu Qing, Secretary of the Party Committee and Chairman of the China Securities Regulatory Commission (CSRC), presided over an expanded Party Committee meeting. The meeting proposed continuously consolidating and strengthening the construction of a stable market mechanism with Chinese characteristics.

Market participants believe that the foundation for stability in China’s capital markets continues to be solidified. A system of mechanisms that connect various links and effectively coordinate across multiple dimensions has been established. Moving forward, these will be further deepened and improved toward normalization and long-term effectiveness, laying a strong foundation for the long-term healthy and stable development of the capital market.

Balancing Efficiency and Security

In January this year, the CSRC held a system-wide work conference for 2026. When reviewing the work of 2025, the meeting mentioned “promoting the construction of a Chinese-characteristic stable market mechanism.”

On March 6, Wu Qing explained the main considerations and key measures for promoting high-quality development of the capital market over the next five years, stating that the CSRC will continue to promote the effective coordination of all parties, improve the “long-term funds and long-term investment” market mechanism and ecosystem, enhance the construction of a Chinese-characteristic stable market mechanism, enrich tools and mechanisms for cross-cycle and counter-cyclical regulation, and further strengthen market internal stability.

Market experts see the Chinese-characteristic stable market mechanism as a macro-financial governance arrangement that balances efficiency and security, enhances internal market stability, and strengthens strategic reserves to improve market resilience and risk resistance. Zhang Jun, Chief Economist of Galaxy Securities, Director of the Research Institute, and Dean of the New Development Research Institute, told Securities Daily that the core purpose of building this mechanism is to enhance the intrinsic stability of China’s capital market. This involves multiple dimensions, including enriching cross-cycle and counter-cyclical regulation tools, optimizing the system for medium- and long-term funds entering the market, continuously improving the quality of listed companies, and establishing a sound expectation management mechanism. At the same time, efforts should focus on based on China’s realities to create a stable operational system for the capital market with Chinese characteristics, effectively improving market resilience and risk resistance, and promoting steady and healthy market development.

“The Chinese-characteristic stable market mechanism is a macro-financial governance arrangement that balances efficiency and security,” said Wei Fengchun, Chief Economist of China Renaissance Fund, in an interview with Securities Daily. Its core includes: cross-market, cross-period risk monitoring and prevention; strategic stable market forces reserves; long-term mechanisms for medium- and long-term funds to enter the market; dynamic optimization of policy toolboxes; and coordination between the central bank and the CSRC, with quasi-stabilization funds playing a “stabilizer” role—fundamentally suppressing irrational fluctuations and preventing risks from transmitting to the financial system and real economy.

Professor Tian Lihui of Nankai University’s Finance Department views the Chinese-characteristic stable market mechanism as an innovation rooted in national conditions, summarized as “Three Stabilizations and Three Strengths”: stabilizing expectations to enhance policy continuity; stabilizing structure with increased proportion of medium- and long-term funds; stabilizing the bottom line to build a systemic risk defense; strengthening coordination among government, market, and investors; enhancing resilience to improve the market’s own risk resistance; and fostering vitality by stimulating innovation on the basis of market stability.

Market Resilience Continues to Strengthen

The 2025 Government Work Report proposed “strengthening strategic reserves and the construction of a stable market mechanism.” Over the past year, progress has been made in practice.

Since last year, regulators have continued to promote the entry of medium- and long-term funds into the market, building a policy system for “long-term funds and long-term investment.” Meanwhile, the CSRC has focused on enhancing the equity investment capabilities of public funds and improving the product system for “long-term funds and long-term investment,” resulting in substantive progress. Data shows that by the end of 2025, various types of medium- and long-term funds held approximately 23 trillion yuan in A-shares’ circulating market value, a 36% increase from early 2025; equity fund sizes grew from 8.4 trillion yuan at the start of 2025 to about 11 trillion yuan by the end of the year.

At the same time, the People’s Bank of China, the CSRC, and other departments optimized and improved two monetary policy tools supporting the capital market, including expanding the number of institutions eligible for securities, fund, and insurance company swaps from 20 to 40, and combining the total quota of 800 billion yuan for these tools to stabilize market expectations and boost investor confidence. The State Financial Supervision and Administration Commission also continued efforts, approving three pilot programs for long-term stock investments by insurance funds, totaling 222 billion yuan by the end of 2025.

The 2026 Government Work Report, reviewing 2025, stated, “Implement comprehensive measures to stabilize the stock market, leading to a steady recovery and active trading.”

Zhang Jun noted that over the past year, new progress has been made in the system for medium- and long-term funds entering the market; counter-cyclical regulation efforts have been strengthened, market liquidity has significantly improved, and the two monetary policy tools have effectively played the role of “stabilizers.” The quality and efficiency of listed companies have improved, investor returns have increased notably, with cash dividends of 2.55 trillion yuan in 2025—setting a new record—further enhancing the intrinsic stability of the market.

“Over the past year, efforts to prevent and resolve systemic risks have shifted the capital market stabilization mechanism from concept to practice, achieving phased results,” Wei Fengchun said. First, risk monitoring and cross-departmental coordination have taken initial shape, with responses to external shocks and cross-market risk transmission becoming more proactive. Second, strategic forces and quasi-stabilization funds have played their roles in hedge extreme situations and restoring market pricing functions. Third, the environment for medium- and long-term funds entering the market has improved, steadily increasing market internal stability. Overall, the stabilization mechanism effectively suppresses irrational fluctuations, stabilizes market expectations, and lays the groundwork for institutional refinement.

Moving Toward Normalization and Long-term Effectiveness

From strengthening the stabilization mechanism to consolidating and enhancing the Chinese-characteristic stable market mechanism, the underlying work principle is to seek progress while maintaining stability in the capital market. This also signals a clear direction toward normalizing and institutionalizing the mechanism.

On March 6, PBOC Governor Pan Gongsheng stated that the People’s Bank of China will work with the CSRC to implement supportive structural monetary policy tools for the capital market, support China Investment Corporation in playing a quasi-“stabilization fund” role, and enhance the internal stability and vitality of the market.

How to make the stabilization mechanism long-lasting? Wei Fengchun believes there are three key aspects: first, strengthen the governance of systemic risk sources, improve comprehensive risk monitoring, and focus on cross-market, cross-border, and cross-period risk transmission to curb external negative externalities at the source; second, bolster strategic stability forces, establish incentives for medium- and long-term funds to enter the market, and improve the normalization, transparency, and effectiveness of quasi-stabilization funds; third, optimize policy toolboxes, strengthen coordination between monetary and capital market policies, and enhance policy predictability to truly build an endogenous, sustainable stability framework for the capital market.

Zhang Jun outlined five specific paths for building the stabilization mechanism: first, optimize investor structure, strengthen financial intermediary functions and management capabilities, vigorously develop equity public funds, and attract retail investors in A-shares through funds and other channels; second, promote the entry of medium- and long-term funds, improve the “long-term funds and long-term investment” system, increase the proportion of social security, insurance, and other long-term funds entering the market, and support with tax incentives and reform of assessment mechanisms; third, improve foundational systems, build a flexible linkage system for issuance, trading, and delisting, and enhance the coordination and adaptability of basic systems to align financing and investment functions; fourth, improve the quality of listed companies, establish a sound expectation management mechanism, strengthen policy communication and interpretation, and guide companies to increase dividends and stabilize long-term market expectations; fifth, strengthen regulatory coordination, enhance multi-department collaboration, and create positive expectations for stable and healthy market development.