The proposed Financial Stability Fund, which figured in the annual Government Work Report for the first time this year, will help fend off and defuse major risks once it is set up, experts said.
Such tasks not only strengthen the core of the financial system but are crucial to the country's stable economic growth, they said.
According to the Government Work Report released on Saturday, the Financial Stability Fund should be set up to fend off risks in "marketized and legalized ways". The suggestion of setting up the fund is included in the part on "preventing and defusing major risks" of the report, a topic that has been stressed for the fifth year in a row.
Tu Guangshao, a member of the CPPCC National Committee, the country's top political advisory body, and executive director of the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, said that the establishment of the Financial Stability Fund acquires profound significance as China is facing multiple uncertainties on the domestic and global economic fronts.
Agreed Lian Ping, chief economist at Zhixin Investment. The launch of the Financial Stability Fund and the introduction of fiscal resources in succession will help stabilize economic growth and alleviate in a precise way the negative impact exerted by internal and external markets on the financial system.
"Different from administrative methods or confronting risks in a passive way, the proposed fund is expected to stabilize market expectations when exposed to risks. Irrational behavior will be prevented and the entire financial system will remain stable," said Tang Jianwei, chief researcher at Bank of Communications' Financial Research Center.
The suggestion of launching the Financial Stability Fund comes amid recent significant fluctuations of the A-share market. The benchmark Shanghai Composite Index shed 2.35 percent to close at 3293.53 points on Tuesday, following Monday's 2.17 percent slide. On Tuesday, both Shenzhen Component Index and the technology-heavy ChiNext touched the lowest since the beginning of the year on Tuesday.
Wang Han, chief economist of Industrial Securities, said that concerns have been expressed before the two sessions that financial risks may merge in China. But the fund serves as a solid groundwork of the entire financial system. External elements may affect the A-share sentiment in the short term. But China's economy and companies' fundamentals will remain stable in the long term, he said.
Ming Ming, co-chief economist of CITIC Securities, said that successful experiences of the European Financial Stability Facility, which was created in June 2010, can serve as a reference for China's planned Financial Stability Fund.
Designed as a temporary crisis resolution mechanism by the euro area member states, the EFSF has so far provided financial assistance in the form of bonds and other debt instruments to Ireland, Portugal and Greece.
While full details of the Financial Stability Fund have not been disclosed yet, Li Peijia, Bank of China's senior analyst, explained that prepaid capital from financial institutions may comprise a major source of the fund, in case they get entangled in any difficult situation.
Fiscal support will become another source. Institutions will have to return the financial aid once they have weathered the crises.
Provincial-level governments will be responsible for setting up the Financial Stability Fund, while both the People's Bank of China and local governments will oversee its management, Li said.