Top News

As per Bloomberg, the Chinese equity market has failed to deliver returns for households, making it a key reason why consumers save more and spend less, a structural issue that complicates President Xi Jinping's growth plans and President Donald Trump's trade war strategy. What's the problem with China's stock market? Despite a recent rally, Chinese indexes have only just recovered to levels seen after the dramatic bubble burst a decade ago. A $10,000 investment in the S&P 500 ten years ago would have more than tripled in value, while the same in China's CSI 300 benchmark would have added only around $3,000. According to long-time China watchers quoted by Bloomberg, the problem is structural. When exchanges were set up 35 years ago, their primary purpose was to channel household savings into funding state-owned enterprises and infrastructure, rather than delivering returns to investors. That bias has left retail investors disappointed and skeptical. Why does this matter now? Xi Jinping is depending on household consumption to drive China's economy toward its 5 per cent growth goal, especially amid intensifying tariff battles with the US. But a lack of faith in the stock market has pushed households toward saving instead of spending. China's household savings rate is extraordinarily high at 35 per cent of disposable income, compared with much lower levels in the US, UK, and Japan. Without confidence in equities as a vehicle for wealth creation, consumers are unlikely to loosen their wallets. Investor sentiments "China's capital market has long been a paradise for financiers and a hell for investors," Liu Jipeng, a securities veteran, told Bloomberg. Many retail investors say they often lose money when chasing rallies. State-owned enterprises often prioritize government goals over shareholder returns, while private firms are accused of weak investor protection. IPO scandals and delistings, such as the case of Beijing Zuojiang Technology, have further eroded trust. Reforms and progress, but not enough Beijing has tried to improve oversight:

• IPO screening tightened - Poor-quality listings are being curbed.
• Dividend payouts rising - In 2024, Shanghai and Shenzhen-listed firms distributed 2.4 trillion yuan ($334 billion) in cash dividends, up 9 per cent from the previous year.
• Buybacks increasing - Though still far smaller than in US markets.

Yet, reforms still tilt toward raising funds for companies, especially in high-tech sectors, rather than protecting small investors. Why is Xi pushing risky IPOs? With the US tightening controls on semiconductors and AI, China is accelerating funding for domestic tech champions. Regulators have resumed allowing unprofitable firms to list on Shanghai's STAR board and Shenzhen's ChiNext, echoing the Nasdaq model. So far this year, IPOs are up nearly 30 per cent from 2024, but analysts warn that fast-tracking weak companies without stronger safeguards risks worsening the trust deficit among retail investors. Why Trump cares too? For Donald Trump, the state of China's equity market also matters. With tariffs piling pressure on Chinese exports, Xi is relying on domestic demand to offset external shocks. But if consumers keep saving instead of spending, China's growth slows and the trade imbalance Trump is targeting becomes even harder to fix. As Bloomberg notes, China's stock market has been decades in the making as a tool for financing growth, not enriching investors. While recent reforms have made progress, the fundamental bias remains. Without a deeper transformation that prioritizes investor returns, China risks keeping its households locked in a savings trap, with big consequences for both Xi's growth goals and Trump's trade war strategy.