China’s Stock Surge Defies Weak Economy, Raising Fears of Another Bust: Analysts
Udumbara
China’s stock market has shown recent strength, while the rally stands in stark contrast to the country’s sputtering economy, where property prices are falling, consumer demand remains weak, and key indicators of the economy consistently undershoot expectations.
On Aug. 18, the Shanghai Composite Index briefly surged past 3,745 points, its highest level in a decade. China’s CSI 300 Index is up nearly 8 percent this year, and daily trading volumes recently exceeded 2.7 trillion yuan ($370 billion), the third-highest on record.
A Market Out of Step With Reality
Ordinarily, a slumping property market and disappointing economic data would weigh on equities. However, in the equities market, momentum picked up since last September, after the Chinese Communist Party (CCP) signaled it would take “unprecedented steps” to stabilize markets.This year, after President Donald Trump announced his global tariffs and reciprocal trade measures in April, China’s economy came under increased pressure, with slowing industrial output and persistent unemployment concerns.
Small Investors Flood Back
Chinese media cited data from the Shanghai Stock Exchange showing that new retail accounts are soaring. In July alone, 1.96 million new accounts were opened, up nearly 20 percent from June and more than 70 percent higher than a year earlier. For the first seven months of 2025, more than 14.5 million new accounts were created.At the same time, household bank deposits have swelled to a record 130 trillion yuan (approximately $18 trillion), creating what officials see as a vast untapped pool of liquidity that can be steered into stocks.
Echoes of the Past
Veteran investors see strong parallels with the famous “5·19 market rally” in 1999, which began during an economic slump and initially soared before a sharp correction.Policy-Driven Momentum
According to Wang, state-linked funds, including Central Huijin Investment, have been aggressively buying exchange-traded funds (ETFs), while regulators have lifted caps on insurers’ equity holdings and restricted short-term selling. The result is a rally tightly managed by what Chinese investors call the “national team,” referring to the Chinese regime’s state funds.However, critics warn the regime’s heavy-handed intervention in the market risks drawing millions of small investors into another cycle of boom and bust.
“Ordinary people may once again be lured in, only to suffer the consequences,” Wang said. “The greatest danger is not missing the rally, but believing that it is sustainable.”
For Beijing, the stock market’s new role is clear. It is no longer just a financing vehicle for state-owned enterprises, Wang said. Instead, it is now a tool for rebuilding consumer confidence. Rising share prices can create a perception of wealth, which the CCP hopes will translate into more spending.
