An electronic board shows Shanghai and Shenzhen stock indices as people walk on a pedestrian bridge at the Lujiazui financial district in Shanghai, China April 2, 2025. REUTERS.
Beijing: At the heart of why consumers in China save so much and spend so little, and why Xi Jinping will struggle to change that behaviour even if they want to, lies the country’s 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 toward 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’ve 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 US$11 trillion market.
The country’s 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 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,” 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 this year. The CSI 300 has risen less than 7% despite a burst of optimism over artificial intelligence (AI), trailing benchmarks in the United States and Europe.
The under performance – along with factors including an uncertain economic outlook – helps explain China’s extraordinarily high savings rate, which stands at 35% of disposable income.
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 could make money, but the majority of them end up poorer,” 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’s especially the case with an ongoing property slump and a fragmented social safety net, which exacerbates a sense of insecurity. — Bloomberg
