China’s stock market has regained its footing in recent months, with the Shanghai Composite Index rising from this year’s low of 3,040.69 on April 7 to 3,875.31 on September 10, a gain of 27.4 percent. This upswing fueled vigorous debate over whether the rebound signals the start of a sustained bull market or is merely a flicker amid a broader and longer structural adjustment.
The recovery of China’s stock market may seem counterintuitive, given lingering concerns over weak economic fundamentals such as sluggish domestic demand, a prolonged property slump and heightened geopolitical tensions. Yet several factors have fueled the recent rally.
At the forefront are proactive policy packages. The government has rolled out stimulus measures targeting both the real economy and capital markets, including cuts in benchmark interest rates, a reduced reserve requirement ratio for banks and fiscal support for infrastructure and high-tech sectors.
Established in the 1990s, China’s stock markets have developed over just three decades alongside the country’s transition from a planned economy to a socialist market system. Investors have long criticized the markets for inadequate transparency and relative immaturity. In recent years, authorities have taken significant steps to strengthen the financial regulatory framework. In March 2023, China launched comprehensive reforms and established the National Financial Regulatory Administration (NFRA) to oversee the financial market.
In April 2024, China introduced a new guideline to strengthen regulation of the stock market and improve corporate governance. The framework set out measures for stricter listings and delisting standards and process. In May this year, the People’s Bank of China, the country’s central bank, pledged firm support for Central Huijin Investment, China’s sovereign wealth fund, to increase its holdings of stock market index funds when necessary. At the same time, the NFRA announced plans to revise rules for insurance companies to encourage greater stock investments. Together, these measures have effectively boosted investor confidence in China’s stock markets.
The Trump administration’s tariffs have disrupted global supply chains and undermined US market stability, eroding international confidence in US financial markets. This has pushed long-term capital to search for alternative destinations offering greater stability and growth potential. With its comprehensive industrial base, vast domestic market and stable political environment, China has emerged as an attractive option amid global uncertainty. Coupled with recent government measures to improve the business environment and enhance market efficiency, these factors have created favorable conditions for capital inflows.
China’s rapid strides in electric vehicles, renewable energy and artificial intelligence have captured the imagination of investors at home and abroad. Firms in these sectors have not only shown resilience but have also positioned themselves at the core of China’s long-term development agenda. Unsurprisingly, the high-tech sector has driven the market upswing in recent months.
There are opportunities for investors to benefit from China’s economic transition from a model of overreliance on property and heavy industry to one driven by innovation, consumption and services. Investors should also be aware of the risk of speculative forces fueled by short-term capital flows. For policymakers, the real test lies in how deeper structural reforms and consistent follow-through can sustain the country’s economic resilience.
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