In recent days, the Chinese A-share market has seen a strong surge, with the Shanghai Composite Index breaking through 3745 points intraday on August 18, reaching a ten-year high not seen since August 2015. The CSI 300 Index has risen nearly 8% year-to-date, with daily turnover exceeding 2.7 trillion yuan, marking the third highest in history. This stock market boom, amidst China’s generally weak macroeconomic conditions, has sparked intense discussions in the market.
Behind this “counter-trend” market rally, experts believe it is not a coincidence but a strategic move initiated by the Chinese Communist Party to address economic challenges and repair the wealth damage caused by the real estate market, aiming to stimulate consumption through the stock market.
Against the backdrop of economic data falling below expectations and the continued downturn in the real estate market, the performance of the Chinese stock market has attracted particular attention. Following the collapse of the property market, the stock market was expected to become the primary channel for families to create wealth, but its long-term performance has been lackluster. It was not until late September 2024, after a series of official measures were taken to stabilize the market, that the market began to show signs of improvement.
Since the beginning of this year, the Chinese economy has faced challenges from the “tit-for-tat tariffs” initiated by U.S. President Trump and the ongoing U.S.-China trade war, with most economic indicators showing weakness. Especially after the release of several July economic indicators by the National Bureau of Statistics of China last week, many were left disappointed.
Last month, the Central Politburo meeting once again emphasized the need to enhance the attractiveness and inclusiveness of China’s capital market.
Amid widespread skepticism about the fundamentals of the Chinese economy, the stock market in China is gradually trending upwards in small steps.
According to data released by the Shanghai Stock Exchange, in July this year, the number of new A-share accounts reached 1.9636 million, an increase of over 300,000 accounts compared to June, representing a nearly 20% increase month-on-month and over 70% year-on-year. In June, there were 1.6464 million new A-share accounts opened, while in July last year, there were 1.1514 million new A-share accounts.
In the first seven months of this year, the total number of new A-share accounts reached 14.5613 million, up 36.88% from the same period in 2024. This indicates a rapid return of enthusiasm for the stock market among the public. Additionally, according to data from the People’s Bank of China, as of the end of July, residents’ deposit balance exceeded 130 trillion yuan, providing a massive potential pool of funds for the stock market.
Financial blogger “Huihu” suggested that the recent “brilliance” of the Chinese stock market is a prelude to the grand parade on September 3rd for the Chinese Communist Party.
” Huihu” indicated that as the real estate game in China becomes unsustainable, the government is executing a strategic move aimed at leveraging the vast amount of deposits to shift people from being “bargain hunters” in real estate to “financial consumers” in the stock market.
Using the metaphor “When the east is not bright, turn to the west – if real estate is not feasible, steer towards the stock market,” Huihu believes that ordinary investors may once again become sacrificial pawns in this macroeconomic game.
A graduate of Purdue University (master’s in finance) and the University of Toronto (MBA), and formerly an investment manager at GF Securities, Wang Siyuan, who is now the chairman of a real estate developer in Canada, recently stated that the current Chinese stock market rally is eerily similar to the “5.19” market rally of 1999 in terms of economic background and trends. Both occasions were characterized by economic stagnation, deflation, overcapacity, prominent unemployment issues, and the bankruptcy of real estate enterprises.
He pointed out that in 1999, after a short-term surge catalyzed by policies, the index experienced a nearly 20% decline over a six-month period before embarking on a slow bullish trend. Similarly, from the high point last year to the low point this year, A-shares also underwent similar declines and adjustments. He questioned, “Is this merely a coincidence?”
He stressed that bull markets in the Chinese stock market often occur when the economy is “sufficiently poor,” as its role resembles that of a “night pot” – only brought out hastily when the economy faces challenges, needs financing, or resolving major issues.
Chinese mainland economists have openly stated that the Chinese capital market is a hell for investors. In a healthy capital market, enterprises and investors should complement each other. But the Chinese stock market, from its inception, was designed to help state-owned enterprises access more private capital to construct more factories, ports, and various infrastructure. Even now, the Chinese stock market continues to lean towards financing, neglecting how to create value for shareholders and generate returns for investors. Due to a lack of regulations and supervision, the Chinese stock market frequently sees scams, treating retail investors as cash cows.
Wang Siyuan believes that the primary function of the past Chinese stock market was to finance state-owned enterprises, leading to the embarrassing situation where “financing is supreme, and investment is secondary.” However, the initiation of this bull market has fundamentally altered the policy intent behind it:
The decline in the real estate market has evaporated a significant portion of residents’ 12 trillion yuan wealth illusion, severely impacting consumption capacity. Authorities realized that relying solely on direct cash injections or wage increases cannot fundamentally restore public consumption confidence.
With the real estate market faltering, the stock market has become the best option to create a “wealth illusion.” An uptick in the stock market can make the public feel that their assets are appreciating, thus fostering the daring and confidence to consume.
Wang Siyuan stated that unlike the U.S. stock market characterized by value creation by enterprises and strict institutional support leading to a “slow bull” market, China’s past “crazy bull” markets often arose from leverage and speculation, ultimately causing retail investors to “burn out” and inhibiting consumption.
He pointed out that in this “bull market,” state entities (led by China’s sovereign wealth fund) are heavily investing in “index stock ETFs,” increasing the proportion of insurance funds holding stocks, and restricting short-term sales, effectively controlling the market pace. This approach is similar to Japan’s experience after the burst of the bubble in the 1990s, where the central bank continuously bought ETFs to revive the stock market.
“The outcome of this tight market control is significantly reduced market volatility, creating conditions for a potential ‘slow bull.'”
Wang Siyuan cautioned that a large influx of retail investors may enter the stock market without a strategy.
His advice to those who have not yet entered the market is that those who have not bought stocks need not be anxious, as this may indicate a lack of understanding of economic and political changes – a major pitfall in investing itself.
He believes the biggest risk in the stock market lies in the temptation for ordinary people to join in, where the stock market might, as usual, overestimate the public’s wallets but underestimate human greed. This “everyone participate” feast could ultimately lead to the most severe consequences.