<\/p>\n
At the heart of why consumers in China save so much and spend so little, and why Chinese President Xi Jinping and US President Donald Trump will struggle to change that behaviour, even if they want to, lies the country\u2019s stock market.<\/p>\n
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 toward saving. A US$10,000\u00a0 <\/span>investment in the S&P 500 Index a decade ago would now have more than tripled in value, while the same amount in China\u2019s CSI 300 benchmark would\u2019ve added just around US$3,000.<\/p>\n 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 US$11 trillion market.<\/p>\n The country\u2019s leaders are under pressure to fix this. President Xi is counting on domestic spending to reach the 5% economic growth goal, especially as a tariff war with the US heats up over the massive trade imbalance. At the same time, Beijing has reasons to keep prioritising the market\u2019s role as a source of capital: the country needs vast funding to nurture companies that underpin its tech ambitions \u2014 even if their profitability remains questionable.\u00a0<\/span><\/p>\n \u201cChina\u2019s capital market has long been a paradise for financiers and a hell for investors, although the new securities chief has made some improvements,\u201d Liu Jipeng, a securities veteran who teaches at China University of Political Science and Law, said in an interview. \u201cRegulators and exchanges are always consciously or unconsciously tilting toward the financing side of the business.\u201d<\/p>\n The limits of China\u2019s stock rally have again been evident this year. The CSI 300 has risen less than 7% despite a burst of optimism over artificial intelligence (AI), trailing benchmarks in the US and Europe. The underperformance \u2014 along with factors including an uncertain economic outlook \u2014 helps explain China\u2019s extraordinarily high savings rate, which stands at 35% of disposable income. \u00a0<\/span><\/p>\n 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.\u00a0<\/span><\/p>\n \u201cMany ordinary people come in thinking they could make money, but the majority of them end up poorer,\u201d Chen said in an interview, adding that he has been investing since 2014. \u201cState-owned companies primarily answer to the government rather than shareholders, while many private entrepreneurs have little regard for small investors.\u201d\u00a0<\/span><\/p>\n Over the past year, China\u2019s top leadership has shown greater awareness of the stock market\u2019s importance as a vehicle for wealth creation. That\u2019s especially the case with an ongoing property slump and a fragmented social safety net, which exacerbates a sense of insecurity. \u00a0<\/span><\/p>\n The Communist Party\u2019s Politburo pledged to \u201cstabilise housing and stock markets\u201d in a December meeting \u2014 a rare expression of support for equities at the high-level gathering. The body also called for \u201cincreasing the attractiveness and inclusiveness of domestic capital markets\u201d in July.<\/p>\n There is no quick fix to boosting household confidence \u201cexcept for a stock market rebound,\u201d said Hao Hong, chief investment officer at Lotus Asset Management Ltd. \u201cThis is a topic that we economists have been discussing in the closed door meetings in Beijing.\u2019\u2019\u00a0<\/span><\/p>\n In some ways, the market\u2019s malaise has been decades in the making.\u00a0<\/span><\/p>\n \u201cThe exchanges are motivated to fulfill the government\u2019s call for increasing companies\u2019 financing,\u201d said Lian Ping, chairman of the China Chief Economist Forum, a think tank that advises the government. \u201cBut when it comes to protecting investors\u2019 interests, there are few who are motivated to do it.\u201d\u00a0<\/span><\/p>\n An explosive growth in new listings made China the world\u2019s biggest initial public offering (IPO) market in 2022. Yet insufficient safeguards for shareholders and lax oversight of IPO frauds have led to share price crashes and delistings \u2014 what retail investors refer to as \u201cstepping on a land mine\u201d.<\/p>\n Take Beijing Zuojiang Technology, which listed in 2019. The company said in a 2023 statement that its product was modeled after Nvidia\u2019s BlueField-2 DPU. The company 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. \u00a0<\/span><\/p>\n The China Securities Regulatory Commission didn\u2019t immediately reply to a fax seeking comment.<\/p>\n Recent years have seen greater efforts to screen poor-quality IPOs and crack down on financial fraud. There\u2019s 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.\u00a0<\/span><\/p>\n There has been visible progress. IPOs shrank to nearly a third of 2023 levels last year. Shanghai and Shenzhen-listed companies handed out a combined 2.4 trillion yuan (US$334 billion) in cash dividends for 2024, up 9% from the previous year, according to state media.\u00a0<\/span><\/p>\n \u201cThe regulations and overall requirements after IPO have become stricter, in terms of reliability, transparency, or information disclosure,\u201d said Ding Wenjie, investment strategist at China Asset Management Co.<\/p>\n Reforms, however, have fallen short of transforming the market into one that prioritises investor returns.\u00a0<\/span><\/p>\n Even with the rise in share buybacks, CSI 300 companies spent only 0.2% of their market value on repurchasing shares in 2024, far less than the nearly 2% spent by S&P 500 firms, according to calculations by Bloomberg.\u00a0<\/span><\/p>\n 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\u2019s Nasdaq, while allowing them for the first time for the Shenzhen-based ChiNext board \u2014 which is earmarked for growth enterprises. IPOs so far this year have increased by nearly 30% from the same period in 2024.\u00a0<\/span><\/p>\n That\u2019s an inevitable move to secure capital for firms that are vital to China\u2019s battle against the US for supremacy in AI, semiconductor and robotics, but also signals that 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 \u201cjust add volume without restoring investor trust,\u2019\u2019 said Hebe Chen, an analyst at Vantage Markets in Melbourne.\u00a0<\/span><\/p>\n Stock exchange officials have been actively reaching out to investment banks and encouraging companies to file for IPOs, according to people familiar with the matter. Some high-quality tech applicants could get access to so-called “green channels” for a faster review and approval process, the people said.<\/p>\n \u201cThe entire regulatory environments are still not up to the task of delivering the best out of those companies,\u201d said Dong Chen, chief Asia strategist at Pictet Wealth Management. It requires a more comprehensive improvement of the institutional environment \u201cto provide the right incentives\u2019\u2019 for companies to deliver values to their shareholders, he said.<\/p>\n <\/p>","protected":false},"excerpt":{"rendered":" At the heart of why consumers in China save so much and spend so little, and why Chinese President Xi Jinping and US President Donald Trump will struggle to change that behaviour, even if they want to, lies the country\u2019s stock market. 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