China’s stock market has seen a continuous rise this year, with margin financing and securities lending hitting a historic high. However, a recent sharp drop has brought to light the coexistence of policy control and market risks. Experts point out that this prosperity is more of a political illusion driven by the lack of support from the real economy, with retail investors ultimately likely to be the biggest casualties.
On Monday, the three major A-share indexes opened with mixed movements and saw an afternoon rise. By the close of trading, the Shanghai Composite Index rose by 0.38% to 3826.84 points, the ChiNext Index rose by 0.58% to 1275.87 points, the Shenzhen Component Index rose by 0.61% to 12666.84 points, and the Growth Enterprise Market fell by 0.84% to 2933.25 points.
According to reports from mainland Chinese media, the margin financing and securities lending balance in the Chinese stock market has surpassed a historic high, reaching 2.3 trillion yuan (about 322 billion US dollars), driving the recent market surge.
However, this surge sharply contrasts with the weakness in China’s real economy. Fan Jiazhong, a professor of economics at National Taiwan University, told Epoch Times that the soaring is mainly due to loose monetary policy, limited investment channels, and funds pouring into financial asset speculation.
Some listed companies have also invested capital in the stock market. For example, Jiangsu Guotai announced on August 22 that it planned to use up to 12 billion yuan for wealth management, with nearly 1.83 billion yuan invested in securities, totaling over 13.8 billion yuan, even exceeding the company’s latest total market value of 13.6 billion yuan. On the same day, the company announced the termination of an investment in a new lithium electrolyte project worth 1.6 billion yuan.
Xie Tian, a professor at the School of Business at the University of South Carolina Aiken, pointed out during an interview with Epoch Times that the recent rapid rise in the Chinese stock market is clearly being driven by political forces, especially to align with the CCP’s “September 3 Military Parade” and the current political situation. In other words, it is actually political interests that are driving the stock market rally.
Financial blogger “Huihu” analyzed that the Chinese government is redirecting funds from the real estate market to the stock market. He described this as a big strategy, stating, “When the east is not bright, let’s focus on the west; when the property market is not doing well, let’s play the stock market.” He believes that ordinary investors may ultimately become sacrificial lambs once again.
However, on September 4th, the Chinese stock market experienced a sharp decline. That day, the Shanghai and Shenzhen stock markets plummeted, with semiconductor and technology stocks leading the decline, and the ChiNext Index dropping by 4.25% in a single day, marking the largest decline in nearly six months. Among them, AI giant Cambricon’s stock price plummeted by 15.85% intraday.
Bloomberg cited insiders as saying that China’s financial regulatory authorities are considering a series of cooling measures, including canceling some short-selling restrictions and curbing speculative trading, but it is not yet confirmed whether they will be implemented.
Regulatory agencies have required securities firms not to promote round-the-clock account opening services, and social media platforms are not allowed to overly hype bullish markets or high leverage data to avoid fueling speculative sentiment.
Saxo Markets analysis suggests that if the authorities intervene to cool the market, “without profit support, overvalued AI and technology stocks face a reset.”
Economist Fan Jiazhong also stated that “the CCP government began to cool down after the military parade, preventing bubbles from inflating too much,” which is highly related to the political schedule.
Xie Tian also believes that the recent rapid rise in the Chinese stock market is actually related to political factors such as the “September 3 Military Parade.” He explained that the government maintains market prosperity before major political events and intervenes afterwards, demonstrating the political control characteristics of the market.
In terms of investment structure, not only have retail investors entered the market in large numbers, but many have even used consumer loans to speculate in stocks.
Reuters pointed out that some speculators have diverted consumer loans with interest rates of around 3% to the stock market, while securities lending rates are between 4% and 5%. A tech industry investor surnamed Liu from Sichuan bluntly stated, “So, of course, I will prioritize borrowing from banks.” He revealed that he transferred funds through multiple accounts.
A 35-year-old programmer surnamed Jiang from Beijing disclosed that she borrowed 200,000 yuan to invest in stocks. The recent market volatility has shocked her, with many stocks fluctuating by 3% to 5%. She said, “If I haven’t taken profits at the highs, I’ll hesitate whether to stop loss when losses start to occur.” Thus, she plans to reduce leverage to allow herself to “sleep peacefully.”
Moody’s pointed out that in a sluggish economic environment, borrowers with lower credit ratings remain active in the market, leading to increased asset risks for creditors. Guojin Securities raised the margin guarantee requirements at the end of August, showing that financial institutions are also strengthening precautions.
According to earlier reports by Epoch Times, in July this year, the number of new A-share accounts reached 1.9636 million, an increase of nearly 20% from the previous month and over 70% from the same period last year. The total number of new accounts opened in the first seven months of this year reached 14.5613 million, a significant increase of 36.88% compared to the same period last year.
Exchange data shows that retail investors’ new account openings surged by 166% in August. In addition, data from the central bank of China shows that by the end of July, residents’ deposit balances reached 130 trillion yuan, forming a huge potential pool of funds.
Fundamentally, the current situation of the Chinese economy is very grim. With the bursting of the real estate bubble, funds flowing into the financial market, and retail investors even using their deposits and loans to enter, the stock market has become overheated.
Fan Jiazhong stated that the disconnect between the deteriorating economic fundamentals and the stock market surge indicates that this upward trend is not driven by improved corporate profits but by policy and liquidity.
However, the Chinese stock market is deeply influenced by policies, lacking transparency, and rampant insider trading. Fan Jiazhong pointed out that the case of Chinese AI chip company Cambricon highlights the proliferation of illusions. The stock created an impression through publicity that it could rival NVIDIA, leading retail investors to chase highs and ultimately become victims.
Reuters reported that Cambricon’s stock price doubled in August and then plummeted by 15% at the beginning of September, with investors betting over 10 billion yuan of borrowed funds on its stock price.
Fan Jiazhong stated that the CCP is using funds under its control and even tacitly allowing loan-based stock speculation.
Xie Tian further criticized this as the government itself participating in fund-raising and “shearing the sheep.” Many major shareholders and “white gloves” are busy cashing out, these individuals may be the privileged class or people manipulating the stock market. This reflects the problem of “the combination of power and corruption, and the shearing of sheep in the stock market.”
Both interviewed scholars believe that the Chinese stock market has deep-seated structural problems, with retail investors always being the biggest victims in such a structure.
Fan Jiazhong stated that these structural problems will result in “95% of retail investors eventually losing money, while the real beneficiaries are institutional investors, company executives, and policy insiders with inside information.”
As resident deposits flow into the market and retail investors show renewed enthusiasm, leverage financing hits new highs, the apparent prosperity of the Chinese stock market conceals deep-seated structural contradictions. Moody’s warns of increased lending risks, and experts generally believe that a stock market without support from the real economy will ultimately struggle to sustain itself.
Xie Tian bluntly stated that the Chinese stock market “basically has no future,” and once more people see the nature of its insider trading and the privileged class profiting, the market could collapse overnight.
Fan Jiazhong warned that when the public, and even ordinary people, rush into the market, it often signals that the market is nearing its end. “The structural problems of the Chinese stock market determine that its prosperity is just an illusionary bubble.”