China’s $14 trillion stock market is a headache for both Xi and Trump

BEIJING - At the heart of why consumers in China save so much and spend so little, and why Chinese President Xi Jinping and his US counterpart Donald Trump will struggle to change that behaviour even if they want to, lies the country’s US$11 trillion (S$14 trillion) stock market.

Even after a recent rally, Chinese indexes have only just returned to levels seen in the aftermath of a dramatic bubble burst a decade ago. 

Instead of incentivising consumers to spend, poor equity returns have nudged them towards saving.

A US$10,000 investment in the S&P 500 Index a decade ago would now have more than tripled in value, while the same amount in China’s CSI 300 benchmark would have added just around US$3,000.

Part of the reason, long-term China watchers say, is structural. 

Created 35 years ago as a way for state-owned enterprises to channel household savings into building roads, ports and factories, exchanges have lacked a strong focus on delivering returns to investors.

That skew has spawned a host of problems, from an oversupply of shares to questionable post-listing practices, which continue to weigh on the market. 

The country’s leaders are under pressure to fix this.

President Xi is counting on domestic spending to reach the 5 per cent economic growth goal, especially as a tariff war with the United States heats up over the massive trade imbalance.

At the same time, Beijing has reasons to keep prioritising the market’s role as a source of capital: The country needs vast funding to nurture companies that underpin its tech ambitions – even if their profitability remains questionable. 

“China’s capital market has long been a paradise for financiers and a hell for investors, although the new securities chief has made some improvements,” Professor Liu Jipeng, a securities veteran who teaches at China University of Political Science and Law, said in an interview. “Regulators and exchanges are always consciously or unconsciously tilting toward the financing side of the business.”

The limits of China’s stock rally have again been evident in 2025.

The CSI 300 has risen less than 7 per cent despite a burst of optimism over artificial intelligence, trailing benchmarks in the US and Europe. 

The underperformance – along with factors including an uncertain economic outlook – helps explain China’s extraordinarily high savings rate, which stands at 35 per cent of disposable income.  

Mr Chen Long, who works in the asset management industry, has taken to social media platform Xiaohongshu to warn people of the risks of chasing the recent rally. 

“Many ordinary people come in thinking they can make money, but the majority of them end up poorer,” Mr Chen said in an interview, adding that he has been investing since 2014. “State-owned companies primarily answer to the government rather than shareholders, while many private entrepreneurs have little regard for small investors.” 

Over the past year, China’s top leadership has shown greater awareness of the stock market’s importance as a vehicle for wealth creation. That is especially the case with an ongoing property slump and a fragmented social safety net, which exacerbates a sense of insecurity.  

The Communist Party’s Politburo pledged to “stabilise housing and stock markets” in a December meeting – a rare expression of support for equities at the high-level gathering.

The body also called for “increasing the attractiveness and inclusiveness of domestic capital markets” in July.

Mr Hong Hao, chief investment officer at Lotus Asset Management, said that there is no quick fix to boosting household confidence “except for a stock market rebound”.

“This is a topic that we economists have been discussing in the closed door meetings in Beijing,” he added.

In some ways, the market’s malaise has been decades in the making. 

Mr Lian Ping, chairman of the China Chief Economist Forum, a think-tank that advises the government, said: “The exchanges are motivated to fulfil the government’s call for increasing companies’ financing. But when it comes to protecting investors’ interests, there are few who are motivated to do it.” 

An explosive growth in new listings made China the world’s biggest initial public offering market in 2022.

Yet insufficient safeguards for shareholders and lax oversight of IPO frauds have led to share price crashes and delistings – what retail investors refer to as “stepping on a land mine”.

Take Beijing Zuojiang Technology, which listed in 2019.

The company said in a 2023 statement that its product was modelled after Nvidia’s BlueField-2 DPU. It warned in January the following year that it was at risk of being delisted, citing an investigation for disclosure violations. It was subsequently removed from the Shenzhen bourse.  

The China Securities Regulatory Commission did not immediately reply to a fax seeking comment.

Recent years have seen greater efforts to screen poor-quality IPOs and crack down on financial fraud.

There is also a push to reduce additional stock issuances by listed companies and share sales by major stakeholders, while encouraging more corporate profit to be passed on to investors. 

There has been visible progress. IPOs shrank to nearly a third of 2023 levels in 2024.

Shanghai and Shenzhen-listed companies handed out a combined 2.4 trillion yuan (S$429 billion) in cash dividends for 2024, up 9 per cent from the previous year, according to state media. 

Ms Ding Wenjie, investment strategist at China Asset Management, said: “The regulations and overall requirements after IPO have become stricter, in terms of reliability, transparency, or information disclosure.”

Reforms, however, have fallen short of transforming the market into one that prioritises investor returns. 

Even with the rise in share buybacks, CSI 300 companies spent only 0.2 per cent of their market value on repurchasing shares in 2024, far less than the nearly 2 per cent spent by S&P 500 firms, according to calculations by Bloomberg. 

The recent policy push to attract more tech listings is also a worrying sign for some investors. 

Regulators are resuming the listing of unprofitable companies on the Star board, dubbed China’s Nasdaq, while allowing them for the first time for the Shenzhen-based ChiNext board – which is earmarked for growth enterprises. IPOs so far in 2025 have increased by nearly 30 per cent from the same period in 2024. 

That is an inevitable move to secure capital for firms that are vital to China’s battle against the US for supremacy in AI, semiconductor and robotics, but also signals that the authorities may again be putting funding needs ahead of investor protection.

Fast-tracking more firms to list without tackling the core problems of corporate credibility will “just add volume without restoring investor trust”, said Ms Chen Hebe, an analyst at Vantage Markets in Melbourne. BLOOMBERG