The Chinese government has mimicked the spirit of former Federal Reserve Chair Ben Bernanke by spending billions of dollars to prop up stock prices as the market has shed hundreds of billions of dollars since June.
According to United States investment bank Goldman Sachs, China doled out up to 900 billion yuan ($147 billion) since June to keep stock prices afloat and prevent any further routing of its stock markets.
Following the peak of the Shanghai market in the middle of June and the subsequent 30 percent collapse in the three weeks after, the government stepped in with a rescue package of up to 900 billion yuan. This includes throwing money at the state-backed China Securities Finance Corp. in order to acquire the stock.
Goldman Sachs states that the total amount of potential funds to prop up the stock market could be two trillion yuan ($400 billion), in addition to the amount of money already spent.
Investors have been concerned that the federal government would step aside and refrain from pumping further money into the stock market. The central government has denied these rumors. Nonetheless, it prompted the largest one-day sell-off in eight years of 8.48 percent in July.
Report authors say this fear is overblown because the market has yet to stabilize and it could be the worst thing to do for the financial crisis.
“The probability of a rash exit is low as the market has not yet stabilized and the government has no pressing need for the funds,” the report said.
So far, Goldman notes, China has dumped money into an array of blue-chip stocks in the banking, food, healthcare and insurance sectors.
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