(Yicai) Oct. 23 -- China needs to allocate CNY2 trillion (USD280.5 billion) in special treasury bonds to boost investment in public welfare sectors, enhance economic growth potential, and stabilize the capital market, according to a think tank under the government.

The funds could enable the government to increase investment in public welfare sectors, including elderly care, childcare, education, healthcare, and affordable housing, the Chinese Academy of Social Sciences' Institute of Finance & Banking said in a macroeconomic and financial analysis report for the third quarter released on Oct. 22. This will help the middle-income group boost effective demand and unleash economic growth potential, it added.

Issuing special treasury bonds would also help the Chinese government increase support for the service sector and small and medium-sized enterprises, which have strong employment absorption capacity, the think tank noted. It will also support flexible and new employment and college graduates, returning migrant workers, and other laborers, stabilizing residents' income expectations.

The central government should use some of the special treasury bonds to establish a market stabilization fund, the think tank said, adding that the fund can focus on the buying and selling of major blue-chip stocks and exchange-traded funds to promote market stability.

The People's Bank of China should provide low-cost liquidity support to the stock market when necessary, the think tank noted. Other measures should include moderately increasing the proportion of insurance company funds allowed to invest in the market and raising the ratio of local social security funds indirectly entering the market to accelerate the influx of long-term capital.

China's central bank should also disclose the inflation indicators and the control targets it focuses on, using credible policy actions to anchor the market's long-term inflation expectations at a reasonable level, according to the think tank. For example, by anchoring the monetary policy to a 2 percent inflation target and committing to continuing to ease policies until the target is met.

Editors: Tang Shihua, Martin Kadiev