The article reflects on the experiences of the Chinese stock market over the last decade and discusses the challenges and opportunities in sustaining a bull market. It explores the relationship between government policies and market behavior, emphasizing how individual investors’ perceptions and speculation can lead to volatile market trends. Despite a reduction in the proportion of retail investors since 2015, government influence remains significant, echoing global patterns with entities like the Federal Reserve impacting markets elsewhere. However, China’s stock market lacks the stabilizing micro and macroeconomic factors seen in developed nations. [para. 1][para. 2][para. 3]
The current bull market was triggered by a well-received press conference involving key economic institutions, which signaled a potential shift in government policy towards addressing inadequate aggregate demand and deflationary pressures. This potential policy shift has raised hopes among market participants. Nonetheless, effective and detailed policy implementations remain crucial for a sustained market rise. [para. 4][para. 5]
Historically, several major reforms in China have affected its economy and stock market. These include state-owned enterprise reforms, housing reforms, and the nation’s entry into the World Trade Organization (WTO) between 1999 and 2002, which led to a significant rise in Hong Kong stocks but delayed benefits for A-shares due to non-tradable share issues. Another impactful reform was the tradable share reform during 2004-2005, which ignited a bull market for A-shares. Additionally, the RMB 4 trillion stimulus during the 2009-2010 financial crisis was pivotal but resulted in challenges like local government debt. The 2014-2015 “strong union of state enterprises” reform initially fueled a bull market but yielded limited economic benefits, leading to a market downturn in mid-2015. [para. 6][para. 7]
Effective past reforms can be broadly categorized as those aligning with international standards and benefiting the populace. China’s WTO accession enhanced its global economic integration, amid current challenges of de-globalization. Housing and shareholding reforms notably transferred benefits to the public, stimulating long-term economic growth despite initial governmental sacrifices. For instance, urban housing reforms transitioned state-provided dormitory living to private ownership, igniting a housing market boom. Similarly, shareholding reforms enabled compensation for minority shareholders, facilitating healthier market development. [para. 8][para. 9][para. 10]
For new stimulus measures to have a positive long-term impact, policymakers should focus on public-benefit initiatives akin to previous housing and stock market reforms. Notably, China’s consumption share in GDP was about 38% from 2013 to 2022, much lower than the over 50% seen in other major economies. This disparity is attributed to China’s high savings rate and low income distribution share. Substantial increases in household income seem unlikely through primary distribution, so government intervention in income redistribution is necessary to boost disposable incomes and spur consumption. [para. 11][para. 12]
To ensure subsidies effectively increase spending, they could be issued as consumption vouchers or regular income supplements. A long-term shift in income expectations and consumption habits could stimulate economic growth, diminish deflationary pressures, and boost company earnings, underpinning a solid stock market foundation. [para. 13][para. 14][para. 15]
AI generated, for reference only