China’s stock market is undergoing a resurgence of historic magnitude, driven by an unprecedented series of policy shifts that have injected new vitality into an economy that had long seemed stagnant. In the final days of September 2024, a confluence of monetary easing, regulatory adjustments, and fiscal stimulus orchestrated by Beijing unleashed a flood of capital, restoring approximately $1.8 trillion in value across its major stock exchanges. What had once been a market weighed down by structural challenges – ranging from the real estate sector’s malaise to weakening consumer confidence and strapped local government finances – witnessed a sharp reversal.
The market has been galvanized by what many perceive as a decisive shift from Beijing, sparking a widespread belief that China’s leadership is finally prepared to intervene more aggressively. The rally in the Hang Seng Index, Shanghai Composite, and CSI 300 has been nothing short of spectacular, raising a key question: Is this the start of a sustainable bull market, or merely a temporary surge driven by sentiment and liquidity?
This dramatic turnaround was set in motion on September 24, when the People’s Bank of China (PBOC) made a bold intervention, followed by a surprising Politburo meeting just two days later. The twin developments marked a distinct break from recent economic management strategies, signaling Beijing’s readiness to employ a broader array of tools to stabilize markets and reignite growth.
The PBOC’s actions set the tone with an aggressive easing package that included a reduction in the reserve requirement ratio (RRR) for commercial banks, cuts to mortgage rates for existing loans, and new liquidity mechanisms aimed at supporting capital markets. The RRR cut alone is projected to inject approximately 1 trillion yuan ($141 billion) into the banking system, while the mortgage rate reductions are designed to alleviate the financial burden on some 50 million households, thus stimulating consumption. More notably, the central bank introduced structural policies, such as a 500-billion-yuan facility to facilitate stock purchases by institutional investors – an unprecedented move meant to stabilize capital markets.
However, it was the September 26 Politburo meeting that solidified the shift in sentiment. President Xi Jinping called for a comprehensive economic revival, urging officials to support private enterprises, alleviate financial distress in local governments, and restore consumer confidence. This was a clear signal that Beijing had pivoted from its earlier, more measured approach to a full-throttle effort to reignite economic momentum.
Xi’s uncharacteristically candid remarks conveyed a sense of urgency, suggesting that the government was willing to take on greater economic risks to reverse the current slowdown. For markets, this was a defining moment – one that marked the end of Beijing’s conservative approach in favor of a more proactive stance.
The market’s response was immediate and overwhelming. On September 30, the Hang Seng Index surged by 2.4 percent, capping a 17 percent monthly gain – its best performance since November 2022. Concurrently, the Shanghai Composite Index advanced 8.1 percent, and the CSI 300 Index jumped 8.5 percent. Each of these indices has now entered bull market territory, having gained over 20 percent from recent lows.
This rally was marked not only by surging stock prices but also by a remarkable increase in trading volumes. Combined turnover in Shanghai and Shenzhen reached a record 2.6 trillion yuan ($370.6 billion), underscoring the wave of capital that has flooded the market.
This influx of capital, driven by both domestic retail investors and institutional funds, has fueled the rally’s upward momentum. Major financial institutions, including UBS and Nomura, have revised their year-end targets for key Chinese indices, reflecting growing confidence in Beijing’s policy pivot. The prevailing belief is that the sudden relaxation of property market controls, the loosening of monetary policy, and the direct infusion of liquidity into capital markets signal a decisive U-turn in China’s economic philosophy. Once focused on deleveraging and curbing excess stimulus, the government now appears to be prioritizing growth.
The critical question now is whether this rally is the beginning of a sustained recovery or simply a temporary surge driven by liquidity and market sentiment. On the surface, there are reasons for optimism. Analysts highlight several structural factors that suggest the rally could endure, at least in the near term.
The first of these factors is the strong policy catalyst. Beijing’s commitment to achieving economic stability through fiscal and monetary measures provides ongoing support, particularly for sectors like infrastructure, construction machinery, and steel, which are expected to benefit from government-led investment. Moreover, China’s industrial strategy is focused on driving technological innovation and renewable energy development – industries such as AI-driven hardware, autonomous driving technologies, and solid-state batteries are likely to play a central role in the country’s economic trajectory.
Patterns of capital inflows add another layer of optimism. Institutional investors, particularly through exchange-traded funds (ETFs) tracking major Chinese indices like the CSI 300 and A50, are positioning for a more prolonged market rally. The CSI 500 ETF, which covers mid-cap stocks, is also expected to draw significant interest, particularly in growth sectors such as pharmaceuticals, advanced manufacturing, and new energy.
Finally, external factors are creating favorable tailwinds for Chinese equities. The U.S. Federal Reserve’s shift toward monetary easing has historically triggered capital inflows into emerging markets, and China is no exception. As global liquidity increases, Chinese equities, particularly large-cap stocks in manufacturing, commodities, and technology sectors, are likely to attract renewed foreign interest. The global demand for industrial metals like copper and aluminum – key inputs in manufacturing and renewable energy industries – further supports this outlook.
Taken together, these developments suggest that the recent rally may be sustained by deeper structural drivers, with capital continuing to flow into key growth sectors, reinforcing the view that this upturn is more than a transient phenomenon. However, while there are reasons for optimism, the long-term trajectory of China’s stock market will depend on whether the government can address several deep-rooted economic challenges.
The first and perhaps most pressing issue is policy continuity. While recent interventions have provided a short-term boost, sustaining the rally will require ongoing fiscal and structural reforms. The liquidity injections and rate cuts have alleviated some of the pressure on heavily indebted real estate firms and households, but they do not resolve the deeper issues plaguing China’s economy.
The real estate sector remains a major risk. Home prices in many cities are still falling, and developers are burdened with substantial debt. Without further reforms, a deterioration in the property market could easily reverse the gains seen in equity markets.
Moreover, the broader macroeconomic fundamentals remain fragile. Manufacturing activity has continued to decline, with China’s official purchasing managers’ index (PMI) showing its fifth consecutive month of contraction in September. This highlights the uneven nature of China’s recovery, with the divergence between stock market performance and economic fundamentals growing ever starker. Without a broader revival in economic activity, the current rally may fizzle out.
Geopolitical risks also loom large. The China-U.S. strategic rivalry remains intense, and any further escalation in trade tensions or sanctions could undermine market sentiment. At the same time, a global economic slowdown – driven by inflationary pressures and tightening financial conditions – could weaken demand for Chinese exports, compounding the challenges facing China’s fragile recovery.
Comparisons to Japan’s stock market in the late 1980s are difficult to avoid. Back then, aggressive monetary policy drove speculative booms, only for Japan’s market to collapse when deeper structural problems, particularly around debt, were left unresolved. Similarly, the U.S. Federal Reserve’s prolonged monetary easing after the 2008 financial crisis led to rapid asset inflation, but true recovery only came after significant financial reforms.
China now stands at a similar crossroads. The rally in its stock market could be the first step toward a more sustained recovery, but only if the government can deliver on longer-term structural corrections. For local authorities, restructuring debt through special bonds or other fiscal tools will be necessary to provide relief, but Beijing needs to fundamentally overhaul its fiscal-tax model to address the root causes of the debt crisis. Strengthening social safety nets and implementing hukou reforms will also be essential to unlocking household spending and sustaining long-term economic growth.
The real estate sector, too, demands continued attention. While Beijing’s recent measures have helped stabilize the market, further actions are required to prevent a protracted downturn. Unsold housing inventory must be absorbed, either through public housing programs or market-driven solutions, to restore liquidity to the sector and prevent a collapse in housing prices.
In conclusion, while China’s stock market has experienced a remarkable resurgence, sustaining this momentum will require more than short-term stimulus. The long-term success of this rally – and, by extension, China’s broader economic recovery – depends on Beijing’s ability to enact meaningful structural reforms. The coming months will reveal whether the recent policy pivot can deliver a lasting economic turnaround or if the current surge will prove fleeting.
Read More: Will the Euphoria Last or Fade Fast? – The Diplomat