In 2025, the Shanghai Composite Index rose by 18.41%, reaching a new 18-year high. However, by the first half of 2026, the index only increased by about 3.16%. Out of 5,530 A-shares, 3,766 experienced a decline, accounting for a staggering 68.10% of the total. The median return for individual stocks during this period was a troubling -15.01%. As of November 4, 2026, around 80% of active retail investor accounts reported losses, with the Shanghai Composite Index experiencing an overall decline of approximately 7.1% for the year.
This stark contrast highlights a key issue: despite the index showing an upward trend, nearly 70% of stocks were still declining. It indicates that while a few heavyweight and popular sectors may lift the index, the vast majority of individual stocks can be on a downward trajectory simultaneously. Therefore, the rise in the index does not reflect the challenging reality faced by everyday investors whose accounts are shrinking.
Furthermore, it is worth noting that the Shanghai Composite Index has seen a year-on-year decline this year.
The Chinese stock market frequently uses index fluctuations as a gauge of market performance, but the index alone fails to capture the complete picture of ordinary investors’ experiences. The index is composed of stocks with varying market capitalizations and weightings; thus, a surge in a limited number of large-cap stocks can create a significant upward impact on the index.
Generally, however, retail investors do not own these weighty stocks but rather a myriad of smaller to mid-cap stocks. The first half of 2026 serves as a prime example, where indices like the ChiNext and the STAR Market saw considerable gains, with technology, artificial intelligence, and related hardware sectors capturing market attention. Yet, many ordinary individual stocks continued to decline, illustrating a situation where market capital is heavily concentrated in a few sectors, showcasing a clear structural divergence within the market.
The paradox becomes apparent: the index might rise while the majority of stocks drop, and even as market turnover increases, ordinary investors may still face losses in their accounts. This discrepancy cannot simply be brushed off as poor stock selection by retail investors.
Regarding the statistic that “around 80% of active retail accounts are in the red,” it is important to note that there is currently a lack of comprehensive, publicly available primary reports, sample sizes, and sampling methods, which prevents this figure from being treated as an official market statistic. However, even without this ratio, the data indicating that nearly 70% of stocks are declining, combined with a median return of -15.01%, suffices to demonstrate the significant gap between the index’s performance and the average investor’s experience.
Another noteworthy trend is the changing manner in which retail investors engage with the market. This shift does not suggest a mass exodus of retail investors closing accounts; rather, many continue to hold onto their stocks and maintain their accounts, yet they are trading far less frequently than in the past.
Media outlets report that, in the first half of 2026, the daily average proportion of retail investors trading individual stocks fell to around 18.6%, the lowest level since 2018. This figure is drawn from media statistical standards and does not represent a cohesive official statistic from the exchanges, but it reflects a prevalent apathy among retail investors.
On the flip side, approximately 20.16 million new retail accounts were opened in the A-share market during the first half of 2026, representing an increase of about 60% year on year. According to calculations from Huayuan Securities, by the end of the second quarter of 2026, the market capitalization of A shares held by individual investors was around 37.14 trillion yuan, constituting about 35%.
When viewing these statistics collectively, a peculiar trend emerges: although new accounts continue to rise and personal investors hold substantial amounts of stock, their activity in direct trading has plummeted drastically. The reality reflects a situation where wealth erosion due to the real estate crisis has diminished people’s financial resources, coupled with extremely low bank savings rates leading to shrinking deposit returns.
Retail investors have turned to the stock market in search of greater returns; however, many find their capital trapped and are unwilling to incur losses by selling off their holdings, prompting a halt in trading. Some simply see no profitable opportunities available, entrenching them in a dilemma.
As retail investors become increasingly hesitant to trade, large shareholders of listed companies are continuously reducing their holdings.
Various institutions have reported a significant increase in share reduction plans by company shareholders since April 2026. According to one grouping of statistics derived from closing prices on announcement dates and proposed reduction limits, over 500 companies announced plans to cut stakes, with the intended reduction amount exceeding 100 billion yuan. Another statistical analysis based on data from Tonghuashun’s iFinD indicated that 397 companies unveiled relevant announcements concerning stakeholder reductions, with a proposed reduction limit of around 120.23 billion yuan, and major shareholders with stakes of over 5% planning reductions of about 62.83 billion yuan.
While it is not illegal for large shareholders to sell shares once lock-up periods expire, the pertinent issue arises when a multitude of shareholders simultaneously announce reduction plans while market absorption capacity and investor confidence are seriously lacking. This scenario can exert downward pressure on share prices, leading to further declines.
Moreover, when companies seek financing, ordinary investors absorb the risks of price fluctuations and investment uncertainties; yet, whenever original and significant shareholders have the opportunity to exit, the market must absorb their shares.
If a company’s performance does not show sustained improvement and shareholder returns falter, ordinary investors naturally begin to question whether the market is generating long-term investment value or merely serving as a trading venue for stakeholders at varied stages of financing and exit.
Additionally, the fluctuations in brokerage share valuations provide another perspective for observing the dynamics of China’s stock market.
As of October 8, 2026, 20 A-share-listed brokerage firms saw their share prices fall below net asset value—an unprecedented occurrence over the last decade. In contrast, only four brokerages were trading below their net asset value at the end of 2025. Notably, some of the largest brokerages, including Huatai Securities, Guotai Junan, Dongfang Securities, and Shenwan Hongyuan, are among those recording this decline.
Nevertheless, the operational data from listed brokerages does not indicate a widespread deterioration. According to statistics released in early November 2026, 41 listed brokerage firms reported a combined net profit attributable to shareholders of 206.57 billion yuan for the first three quarters of 2026, reflecting a year-on-year growth of 24.02%, with 30 of these brokerages experiencing an increase in net profit.
This disparity at least indicates that market evaluations of future brokerage value are not solely based on current profitability. When investors lack confidence in the overall market outlook, policy stability, and long-term returns from financial sectors, even a short-term profit increase in brokerages might not translate into an elevation in valuations.
Beyond the rises and falls of indices, retail losses, and shareholder reductions lies a deeper issue that underscores the excessive administrative interference that has long affected the Chinese stock market.
The pace of IPO issuance, refinancing arrangements, reduction schemes by large shareholders, the flow of funds, and market stabilization measures are often directly influenced by administrative policies. Participants in the market must navigate not only corporate performance, industry outlook, and valuations, but they also have to predict policy trends, which firmly ensnares them in a typical “policy market.”
A comparison with the U.S. stock market reveals these institutional differences more clearly.
The U.S. market is also subject to government regulation and has implemented rescue measures during financial crises or significant market risks, but it does not fully rely on state operations. Instead, in daily trading, stock prices are predominantly determined by market supply and demand, corporate earnings, investor expectations, and risk assessments. Regulatory bodies primarily focus on maintaining information disclosure, fair trading, fraud prevention, and legal enforcement, rather than dictating market movements or supporting specific stock prices.
In contrast, China’s market exhibits a stronger policy orientation. The stock market is not merely a platform for business financing and investor trading; it is also tasked with the promotion of the Chinese Communist Party’s industrial policies, support for designated strategic industries, and the maintenance of financial stability. Though these policy objectives are based on macroeconomic considerations, excessive administrative interference and a multitude of direct market engagements severely impair the market’s function as a mechanism for capital pricing and investment returns.
Ultimately, the Chinese stock market is not structured to allow ordinary investors to reasonably share in the success of corporate developments. Even with sporadic significant index upswings, the market cannot genuinely be regarded as a healthy, mature investment environment.
Investing in the stock market involves risks, and this article is intended for informational purposes only and should not be construed as investment advice.