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<\/p>\n[BEIJING] At the heart of why consumers in China save so much and spend so little, and why President Xi Jinping and US leader Donald Trump will struggle to change that behaviour even if they want to, lies the country\u2019s stock market.<\/p>\n
Even after a\u00a0recent rally, Chinese indices have only just returned to levels seen in the aftermath of a dramatic bubble burst a decade ago.\u00a0Instead of incentivising consumers to spend, poor equity returns have nudged them towards saving.<\/p>\n
A US$10,000 investment in the S&P 500 Index a decade ago would now have more than trebled in value, while the same amount in China\u2019s CSI 300 benchmark would\u2019ve added just around US$3,000.<\/p>\n
Part of\u00a0the reason, long-term China\u00a0watchers say, is structural.\u00a0Created 35 years ago as a way for state-owned enterprises to channel\u00a0household savings into\u00a0building roads, ports and factories, exchanges\u00a0have\u00a0lacked a strong focus on delivering returns to investors. <\/p>\n
That skew has spawned a host of problems, from an oversupply of shares to questionable post-listing practices, which continue\u00a0to weigh on the US$11 trillion\u00a0market.\u00a0<\/p>\n
The country\u2019s leaders are under pressure to fix this. Xi is counting on domestic spending to reach the 5 per cent economic growth goal, especially as a tariff war with the US heats up over the massive trade imbalance. <\/p>\n
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At the same time, Beijing has reasons to keep prioritising the market\u2019s role as a source of capital: the country needs vast funding to nurture companies that underpin its tech ambitions \u2013 even if their profitability remains questionable.\u00a0<\/p>\n
\u201cChina\u2019s capital market has long been a paradise for financiers and a hell for investors, although the new securities chief\u00a0has made some improvements,\u201d Liu Jipeng, a securities veteran who teaches at China University of Political Science and Law, said in an interview. \u201cRegulators and exchanges are always consciously or unconsciously tilting towards the financing side of the business.\u201d<\/p>\n
Limits of the rally<\/p>\n
The limits of China\u2019s stock rally have again been evident this year. The CSI 300 has risen less than 7 per cent despite a burst of optimism over artificial intelligence (AI), trailing benchmarks in the US and Europe.\u00a0<\/p>\n
The underperformance \u2013\u00a0along with factors including an uncertain economic outlook \u2013 helps explain China\u2019s extraordinarily high savings rate, which stands\u00a0at 35 per cent of disposable income.\u00a0\u00a0<\/p>\n
Chen Long, who works in the asset management\u00a0industry, has taken to social media platform Xiaohongshu to warn people of the risks of chasing the recent rally.\u00a0<\/p>\n
\u201cMany ordinary people come in thinking they could make money, but the majority of them end up poorer,\u201d he said in an interview, adding that\u00a0he has been investing since 2014.\u00a0\u201cState-owned companies primarily answer to the government rather than shareholders, while many private entrepreneurs have little regard for small investors.\u201d\u00a0<\/p>\n
Over the past year, China\u2019s top leadership has shown greater awareness of the stock market\u2019s importance as a vehicle for wealth creation. That is especially the case with an ongoing property slump and a fragmented\u00a0social safety net, which\u00a0exacerbates\u00a0a sense of insecurity.\u00a0\u00a0<\/p>\n