(Yicai) Jan. 23 -- The major stock indexes in the Chinese mainland have rebounded after the State Council, China's cabinet, stressed the need to stabilize the onshore stock market.

The Shanghai Stock Exchange Composite Index closed 0.5 percent up today, after earlier falling to the lowest since April 2020. The index has plunged 7 percent so far this year. The Shenzhen Stock Exchange Component Index and the ChiNext Index rose 1.4 percent and 1.2 percent, respectively.

The State Council proposed at an executive meeting yesterday that more powerful actions should be taken to stabilize the capital market and investors confidence, including injecting more medium- and long-term funds, Xinhua News Agency reported today.

The move comes after the People's Bank of China's decision not to cut interest rates as expected early this year, and market rumors about forced liquidation of some stock index options caused a sharp decline in the Chinese mainland indexes, which in turn greatly damaged investors' confidence.

If the decline continues, competent authorities will have to issue measures to stabilize market confidence, Li Zhan, chief economist at the research department of China Merchants Fund, told Yicai yesterday.

Now is a good time for the government to introduce a stabilization fund because it would steady the market in the short term and smooth the curve of the stock indexes in the long run, Zhao Xi, investment director at Tuopai Private Equity Fund Management, told Yicai. It would be appropriate to have a stabilization fund between CNY2 trillion and CNY4 trillion (USD281.8 billion and USD263.6 billion).

Governments set up stabilization funds via specific institutions to correct irrational fluctuations in the capital market by reversing operations. They generally make up 3 percent to 6 percent of the total market capitalization.

Editors: Dou Shicong, Futura Costaglione