Taiwan sets $16 bn fund to weather China storm

Lee had said in a July 9 statement that Taiwan and China were in "special state-to-state relations", angering China and raising fears of an earlier spat that ended with Beijing firing missiles into the Taiwan Strait in an intimidating show of force in 1996.

Beijing views Taiwan as a renegade province and does not rule out trying to reunite the island with the mainland by force. Last year’s row dragged Taiwan shares down 14 per cent at one point. "Four years ago, the Chinese communists threatened to use missiles to attack Taiwan, causing sharp jitters in the Taiwan market," Lee said.

"I then proposed 18 counter-measures, one of them was the setting up of the stabilisation fund." The approval of the fund gave a push to Taiwan stocks, which ended nearly two percent higher at 9,191.37 on Saturday. Finance officials said the fund would buy stocks in times of financial as well as political crisis to combat any sharp fluctuations of Taiwan’s benchmark TAIEX index. "In case of sudden financial and monetary volatility in our market, the fund can help stabilise the conditions," finance minister Paul Chiu said.