Analysis: Stock Market Plays Vital Role in Assessing China’s Policy Effectiveness
The beginning of 2025 has brought about a period of high volatility in China’s stock market, influenced by geopolitical tensions and a sluggish domestic economy that have caused uncertainty among investors regarding the market’s trajectory. Recent data from Bloomberg indicates that the CSI 300 Index experienced a more than 5% decline in the first seven trading days of the year, marking its worst start since 2016. Additionally, the MSCI China Index has fallen by 20% since reaching its peak last October, potentially indicating a bearish trend. A survey of 15 Chinese fund managers and strategists revealed a preference for Chinese government bonds and U.S. dollar assets over domestic stocks, showing a lack of confidence in the current market. Despite a brief rally on January 14, where all three major A-share indices experienced gains, the market remains uncertain and volatile in the face of ongoing challenges.
Looking back at 2024, China’s stock market exhibited significant volatility, with a sharp decline at the beginning of the year followed by a rebound in the latter part, resulting in gains between 30% to 40%. This upsurge was instigated by the Chinese government’s announcement of cuts to the reserve requirement ratio and interest rates, infusing liquidity into the market and igniting investor optimism. However, this bullish period was short-lived as the market quickly corrected, leaving many investors in precarious situations. By December, the Central Economic Work Conference shifted from a “prudent and flexible” monetary policy to a “moderately loose” stance, prioritizing stimulating domestic consumption for economic growth. Nevertheless, this policy change failed to sustain the market’s momentum, evident when all three A-share indices closed lower on December 13.
In the complex economic landscape of today, there exists a notable disparity between government policies and market responses in China. Although short-term stimulus measures are frequently introduced, the markets’ expectations and confidence in these actions have not been notably restored. Consequently, there is a noticeable lack of alignment between public expectations of government policies and their implementation, highlighting the need for more effective policy communication and execution.
Assessing the effectiveness of China’s policies from the perspective of ordinary citizens depends on how well the government addresses their immediate needs and reflects their aspirations in the implementation process. While essentials are crucial, the populace’s evolving demands, including higher-level development and investment needs, necessitate greater attention from policymakers. ANBOUND researchers emphasize the importance of shifting focus from basic needs fulfillment to long-term development and wealth creation to adequately meet the demands of China’s growing middle class and address economic transformation requirements.
In navigating this intricate economic environment and social progress, the Chinese government must merge strategic foresight with practical execution to tackle long-term objectives and immediate challenges effectively. The precision and clarity in policy formulation and implementation can drive impactful results and reignite market dynamism, instigating a positive feedback loop that restores public confidence in government actions.
At ANBOUND, experts attest that the capital market’s evolution and stability are integral to everyday life and wealth management for average individuals. The effective reform and enhancement of the capital market directly impact the investment demands of the public and hold the potential to influence future economic prosperity. Hence, the government’s capability to facilitate sustainable growth in the stock market is regarded as a pivotal indicator of its performance, as it reflects economic fundamentals and underpins public confidence in wealth security and investment opportunities.
For an extended period, China’s stock market has lingered at suboptimal levels, failing to align with the nation’s long-term economic and capital market aspirations. The dissociation between the stock market’s performance and China’s macroeconomy signals an urgent need for improved market stability to mirror the country’s comprehensive strength and economic potential accurately. Achieving consistent stock market stability is essential not only to reflect economic conditions accurately but also to bolster public confidence in investment opportunities, showcasing the efficacy of government policies at a fundamental level.
