Recently, the capital market has welcomed significant news. A plan detailing measures for encouraging medium- and long-term funds into the capital market was jointly issued by the office of the Central Financial Work Commission, as well as five government departments. This move has attracted great attention from all parties of the capital market.

A busy morning on Beijing's Financial Street on January 10, 2025. (Photo: CFP)

What are medium- and long-term funds? In simple terms, they are funds with a relatively long investment horizon and a pursuit of stable long-term returns. For example, commercial insurance funds, national social security funds, basic pension funds, enterprise annuity funds, and public funds are all typical types of medium- and long-term funds. The plan issued this time aims to guide these types of capital to increase their market participation.

Promoting the entry of medium- and long-term funds into the capital market is of great significance. Such funds can hold stocks for the long term and are more professional and stable, acting as a stabilizer for the healthy development of the capital market. This not only benefits the healthy and stable development of the capital market itself but also helps optimize market resource allocation, improve capital utilization efficiency, and channel more funds into the real economy, thus promoting high-quality economic development.

In China's capital market, there is still significant room for increasing the proportion of institutional investors and medium- and long-term funds. Therefore, for a long time, there have been continuous calls for promoting the continuous entry of medium- and long-term funds into the market. Financial departments have also provided a lot of policy support and guidance to address issues such as insufficient total fund amounts, suboptimal structures, and medium- and long-term funds' insufficient leading role.

This photo taken on Dec. 8, 2024 shows the Shenzhen Stock Exchange in Shenzhen, South China's Guangdong Province. (Photo: CFP)

Actually, a guiding document on the entry of medium- and long-term funds into the capital market was already released in 2024. In September 2024, the Office of the Central Financial Work Commission and the China Securities Regulatory Commission jointly issued guidelines to encourage medium and long-term funds to enter the capital market. Focusing on the overall goal of "more long-term capital, longer investment horizons, and better returns," the guidelines proposed three key measures: the development of a market environment that encourages long-term investments, advocating the expansion of public equity funds, and refining supporting policies for the entry of various types of medium- and long-term capital. The guidelines provided a "blueprint," and the issuance of this more operational implementation plan in 2025 means that the "blueprint" is being rolled out. From this "blueprint," we can see many breakthroughs.

The breakthroughs come from clearer policy requirements. The action plan clarifies specific arrangements for steadily increasing the scale and proportion of medium- and long-term funds in A-shares. It requires the circulating market value of A-shares held by publicly offered funds to increase by at least 10 percent each year in the next three years. It urges large state-owned insurers to invest 30 percent of their new premiums in A-shares annually from 2025 and continue to increase the proportion and scale, which means that at least hundreds of billions of yuan will be added to A-shares every year. Standardized requirements are not only conducive to the effective implementation of policies, but also give the market clearer and more stable policy expectations.

Another breakthrough comes from institutional reform and innovation. This implementation plan clarifies a vital institutional breakthrough, which is to promote the establishment of a long-term assessment mechanism for more than three years for all types of medium- and long-term funds and to improve the stability of medium- and long-term capital investment starting from the assessment system. The short assessment cycle has been a sticking point that has restricted medium and long-term funds from expanding A-shares investment for many years. The implementation of long-term assessment can effectively smooth out the impact of short-term market fluctuations on performance. Such a means could address problems that have remained unresolved for years and allow long-term capital to be utilized via a more prudent approach.

This breakthrough comes from the greater importance given to cultivating market ecology. Considerable investment returns and a good capital market ecology are the basis for attracting all types of medium- and long-term funds to enter the market. The implementation plan makes improving the returns of listed companies a priority, and makes arrangements in terms of guiding listed companies to increase share buybacks and implement multiple dividends per year, and promoting listed companies to use reloan tools for share buybacks and increases. It aims to enhance the appeal of the capital market for medium- and long-term funds through high-quality development of the market itself.

The accelerated entry of medium- and long-term funds into the capital market is relevant to every investor. Therefore, the implementation plan stresses an investor-oriented approach, strengthens the binding of interests between fund companies, senior executives, fund managers and investors, and promotes greater emphasis on the return on investment. For social security funds and basic pension funds, safety is the first consideration. The Ministry of Human Resources and Social Security and other relevant departments have further emphasized steadily increasing investment in the stock market to better achieve a virtuous cycle of maintaining and increasing the value of funds and high-quality development of the capital market on the premise of ensuring the safety and liquidity of assets.

Vigorously guiding medium- and long-term funds into the market is a long-term mission. This action plan, which has rigorous top-level design and clear details, has been implemented with the joint efforts of six departments. In the next phase, joint efforts of departments need to be further strengthened to make this long-term system reform fully take effect. With close cooperation across departments, a market ecology conducive to long-term investment will take shape at a quicker pace, helping to achieve a virtuous cycle of medium- and long-term capital appreciation, stable and healthy operation of the capital market, and high-quality development of the real economy.

(Translated by Feng Qinyuan and Zhan Huilan)