Chinese stock markets play a crucial role in the broader context of China's socialist market economy, which has been shaped significantly by state policies and the leadership of President Xi Jinping. According to a recent analysis by Junhua Zhang from Geopolitical Intelligence Services AG, the stock market serves primarily as a funding tool for state-owned enterprises (SOEs), reflecting the government's strategic economic priorities.
Historically, the first Chinese securities firm began trading in 1869, but the stock market was closed in 1949 following the establishment of the People's Republic of China. It was not until the economic reforms initiated in the late 20th century that the stock market was revived, primarily to finance SOEs. Currently, the market is segmented into state, corporate, individual, and foreign shares, with approximately 65% of shares being state and corporate shares that cannot be listed or transferred freely, underscoring the tight control the government maintains over the financial system [9b012b27].
Since Xi Jinping took office in 2013, there has been a noticeable tightening of control over companies, with major firms such as Alibaba and HNA facing liquidation or nationalization. This shift has contributed to a significant decline in market value, with the stock market losing approximately $6 trillion since late 2021. In February 2024, the Chinese government intervened to stabilize prices, reflecting ongoing concerns about market volatility and investor confidence [9b012b27].
The China Securities Regulatory Commission (CSRC) has also implemented measures that limit real-time trading data, further reducing transparency and prompting foreign investors to withdraw from the market due to concerns over regulatory unpredictability. As a result, China's A-shares have declined by 20%, contrasting sharply with significant gains in other global markets. Notably, 60% of household assets in China are tied up in real estate, with only 5% allocated to stocks, indicating a cautious approach to equity investment among the populace [9b012b27].
In summary, the strategic role of Chinese stock markets is deeply intertwined with state policies and the overarching goals of the Communist Party of China (CCP). The stock market is viewed more as a tool for funding SOEs rather than a regulatory force, reflecting the unique characteristics of China's socialist market economy. Understanding these dynamics is essential for grasping the current state of China's financial markets and their implications for both domestic and foreign investors [9b012b27].
