The performance of China’s stock market has been lower than the global stock market for the fourth consecutive year. Recently, the Shanghai and Shenzhen 300 index has seen an expanding decline, approaching the lowest closing price since January 2019. The selling of Chinese stocks has deepened the confidence crisis in the world’s second-largest economy, putting greater pressure on the Chinese Communist regime.
Since the beginning of the year, the Shanghai and Shenzhen 300 index has fallen by about 7%, facing an unprecedented fourth consecutive annual decline. With the geopolitical tensions escalating before the US election in November, the selling pressure in the Chinese stock market is increasing day by day.
In recent years, the Chinese market has been caught in a similar cycle, with the stock market dropping back to lows after brief rebounds triggered by optimism. It has been proven that the piecemeal stimulus measures by the Chinese regime have failed to address the confidence crisis. Deflation pressure, weak consumption, and the continued slump in the real estate sector have all diminished hopes for a near-term economic recovery.
The poor performance of the Chinese stock market contrasts sharply with this year’s bull markets in the global stock market, highlighting investors’ doubts about the Chinese economic outlook. Currently, emerging market stock funds avoiding China are popping up like mushrooms after rain, indicating that investors are looking elsewhere for higher returns.
Since reaching its peak in 2021, the combined market value of China and Hong Kong’s stock markets has evaporated by about $6.5 trillion.
Bloomberg pointed out that the risk faced by the Chinese authorities is that the market downturn may further weaken consumer and business confidence, leading to a deflationary cycle, impacting business income, and resulting in further salary cuts and layoffs. This is one of the reasons why state-supported funds spending billions of dollars to support stock prices have had minimal effect.
On Monday, Ron Temple, Managing Director of Lazard Asset Management, told Bloomberg, “This is a surprisingly bad period for the market. The problem is that the economic situation (in China) is worse than I imagined six months ago.”
“The longer the government refuses to take significant stimulus measures, the longer consumer confidence will be damaged, and the harder the problem will be to solve,” he said.
The optimistic trend on Wall Street led to a slight uptick in Asian stock markets on Tuesday, but concerns about the economic recession in China weighed on market sentiment.
Data on Tuesday showed that China’s export in August recorded the fastest growth since March 2023, indicating that manufacturers were rushing to send out orders before some trading partners imposed tariffs. Meanwhile, imports fell short of expectations due to weak domestic demand.
Previously, inflation data released on Monday showed that industrial prices were deflating, and domestic demand remained weak, prompting continued calls for authorities to take further stimulus measures.
Bloomberg pointed out that as the Chinese authorities seek self-sufficiency in industry, control over private enterprises continues to strengthen, and trade fissures with Western countries are widening, all of which have eroded confidence in the Chinese stock market. The reluctance of the Chinese regime to embark on an economic path that empowers businesses is a significant reason for this loss of confidence. As China enters a low-growth era, it will lack the vitality of emerging markets and the stability of developed markets, inevitably leading to a struggle for the stock market.
Steven Leung, Executive Director of UBS Securities Hong Kong, said, “The mainland Chinese and Hong Kong investors I know are very disappointed. They feel despair and are cutting back on already low risk exposures.”
Hao Hong, Chief Economist at BOCI Global, said, “The market has been seeking policy boosts, but only piecemeal policies have been implemented. It’s like providing life support to a patient rather than performing the necessary surgery.”
Hong added that to restore confidence in the economy, the Chinese authorities should cease all market-disturbing activities and let the market take its course.