How to Firmly Maintain the Stable Operation of the Stock Market

Ask AI · How does the central bank proactively predict stock market fluctuations and take measures?

On March 19, the A-share market, after successfully surpassing 4,000 points on January 5, 2026, experienced its first intraday dip below 4,000 points. Fortunately, the index closed at 4,006.55 points, barely staying above 4,000. However, this closing level was also the lowest since 2026. That day, the Shanghai Composite Index fell by 1.39%, with 4,955 stocks declining across the Shanghai and Shenzhen markets, and only 505 stocks rising.

Amid the precarious situation of the Shanghai Composite approaching 4,000 points, the market welcomed news after the close that the central bank is firmly committed to maintaining the stability of financial markets such as stocks, bonds, and foreign exchange. This news was like a refreshing rain, nourishing the market and giving investors hope. Investors are hoping that the authorities will indeed uphold the stability of the stock market as they have stated.

From the central bank’s statements, their stance on maintaining market stability is firm—they are determined to ensure the smooth operation of stock, bond, and foreign exchange markets. Such declarations help boost investor confidence. However, maintaining market stability cannot be just lip service; it must be implemented through concrete actions and practical measures.

In fact, the central bank’s relevant meeting was held on March 18, so the decisions made were not directly in response to the March 19 market performance. Yet, the market’s reaction on March 19 suggests that the central bank’s outlook was forward-looking, as if the market movements on March 19 were already within the central bank’s grasp. This is why the central bank, during its March 18 meeting, issued a strong statement about maintaining market stability. It also indicates that the commitment to stability is not a temporary decision but a long-term one.

So, how can the central bank ensure the stable operation of the stock market? Their stance is to fully leverage macroprudential management and financial stability functions to steadfastly support the stability of stock, bond, and foreign exchange markets. Their statement was very macro-level and did not specify particular measures.

Since the “9.24” market event in 2024, the central bank has introduced two major measures to support market stability. The first is creating swap facilities for securities, funds, and insurance companies, enabling qualified institutions to obtain liquidity through asset pledges from the central bank. The second is establishing stock repurchase and additional loan services, providing loans to listed companies for stock buybacks and major shareholders’ increased holdings. These policies have indeed played a positive role in boosting the stock market.

However, looking at the current market, relying solely on these two policies is insufficient to firmly maintain stability, as the funds they provide are limited. Achieving stable operation requires multi-faceted policy efforts.

First, it is necessary to halt quantitative trading. Quantitative trading is a significant bearish force in the stock market and a major hidden risk to market stability. Especially during consolidations or corrections, quantitative trading continuously drains the already limited liquidity, not only harming small and medium investors but also affecting some small and medium institutions. The existence of quantitative trading severely damages the interests of retail investors and undermines their confidence in holding stocks. Therefore, to maintain market stability, it is essential to eliminate quantitative trading and restore investor confidence.

Second, it is necessary to stop the selling of shares repurchased by listed companies. Stock buybacks are originally intended to boost market confidence, especially when used for cancellation, which can increase the value of the remaining shares. However, not all buybacks are for cancellation; some are held as treasury shares and later reintroduced into the market at appropriate times. For example, since the market surpassed 4,000 points, especially after reaching 4,100, many companies that had repurchased shares have begun to reduce their holdings and sell these treasury shares back into the market. This practice is akin to companies speculating on their own stocks—buying low and selling high, effectively harvesting investors’ gains. Such behavior seriously harms investor interests and shakes confidence, and should be stopped.

Third, it is important to increase inclusiveness on the investment side and reduce artificial market interventions. In recent years, the authorities have emphasized making the capital market more inclusive. But inclusiveness should not only be about financing; it should also encompass the investment side. For example, increasing tolerance for market speculation and reducing human interference in market fluctuations. The standards for identifying abnormal price movements on the main board should be consistent with those on the STAR Market and Beijing Stock Exchange, adhering to the “three public” principles. In fact, whether it’s speculation or value investing, as long as there is no market manipulation or insider trading, the market should treat both fairly and equally under the law.

Additionally, there is an urgent need to improve the shareholder reduction system. The reduction of restricted shares should be linked to the dividends paid to investors by listed companies. Before the dividends exceed the amount of financing raised by the company, shareholders holding restricted shares should not be allowed to reduce their holdings. This measure aims to slow down the pace of share reduction by major shareholders. Since the market surpassed 4,000 points, the pace of share reduction by major shareholders has accelerated, with dozens of companies announcing reductions daily, severely undermining investor confidence.

Author’s note: These are personal opinions and for reference only.