Recently, the Chinese stock market has surged, with a single-day gain reaching a new high in sixteen years. Does this reflect an improvement in the Chinese economy, and can small investors continue to profit from the current stock market?
The People’s Bank of China recently introduced a series of measures to support the real estate market and lower interest rates and reserves, injecting one trillion yuan into the market, which is seen as a positive measure for the stock market. On September 30th, the A-share and Shanghai Composite Index rose by more than 8%, with the Shanghai 100, Shanghai 1000, and Shenzhen Composite Index all surging by over 10%. The sudden surge in the Chinese stock market has attracted new retail investors, leading to an unusually high trading volume, with the Shanghai Stock Exchange system even experiencing temporary crashes.
Regarding the current turnaround in the Chinese stock market, experts believe that this is due to market expectations of a series of stimulus policies for the economy. However, these policies may not be able to truly address China’s economic issues, raising concerns that there might be a bubble of stock price plunges in the future.
According to a report by Radio Free Asia, Huang Tianlei, a Chinese economic researcher at the Peterson Institute for International Economics, stated that the fundamental situation of the Chinese economy has not improved. He expressed concerns that without the implementation of the aforementioned policies by banks, “the current situation in the stock market could very likely lead to a bubble. Even if it doesn’t generate a market-wide bubble, it may create bubbles in specific stocks.”
The Chinese economy has suffered greatly due to the extreme lockdown measures implemented by the Chinese Communist Party during the pandemic. Although the Party had to abandon its “zero-COVID policy,” a subsequent real estate crisis emerged, causing not only the loss of the housing market’s role as a driver of China’s economic development but also significant shrinkage of wealth for ordinary families. Despite efforts at the 20th Central Committee’s Third Plenum held in July to boost flagging consumer and investment confidence, people’s wallets remain tight.
George Magnus, former Chief Economist at UBS and Deputy Researcher at the China Center of the University of Oxford, stated that the policies rolled out by Beijing do not truly change the current situation. The potential for restoring the optimistic dynamism essential for economic growth will depend on the government’s implementation of relevant policies.
Magnus believes that the future direction of the Chinese economy will also depend on market sales in October and November this year, as well as whether the economic growth rate can continue to approach or reach the 5% target in 2025.
Huang Tianlei pointed out that not only has the GDP growth rate been negative for five consecutive quarters, but the Producer Price Index (PPI) has also been negative for nearly two years. While the core Consumer Price Index (CPI) showed a slight increase in August (0.3%), it remains relatively low, indicating weak private demand and purchasing intentions—reflecting the current lack of positive trends in the Chinese economy.