Pod Insights Finshots Daily Can China’s stock market ever deliver like India’s? About this episode In today’s episode on 21st August 2025, we tell you why China’s $11 trillion stock market has been an underperformer, what’s been done to fix it, and how it all compares to India.
Transcript 0:00 Speaker 00 Hello folks, you're listening to Finchart's Daily. And in today's episode, we tell you why China's $11 trillion stock market has been an underperformer, what's been done to fix it and how it all compares to India. Before we begin, here's a quick word from Team Ditto. Life can be unpredictable and if the main earner is not around, the bills won't stop. That's why term insurance is so important. It gives your family a fixed payout so they can cover school fees, EMIs and daily expenses without stress. If you buy it early, you can get a one crore cover for as little as ₹1000 a month and the premium stays the same for your entire policy term. That's real peace of mind at a very small cost. And if you're not sure which plan is right for you, book a free call with Ditto.
0:44 Speaker 00 No spam, just honest guidance. And we're trusted by over 8 lakh people for their health and term insurance needs. Now, back to the story. The markets always have a tendency to go up or "so you must have heard", but here's a stat that might shake that belief. ₹10,000 invested in China's CSI 300, the benchmark index that tracks the top 300 stocks 10 years ago, would be worth just about ₹13,000 today. That's barely 3% a year for the world's second largest economy. The same money in the US S&P 500 would be over ₹30,000 and over double in India's Nifty 50. So, what went wrong with Chinese stock markets? Well, it all goes back to how they were designed.
1:28 Speaker 00 When China opened its stock exchange in the 1990s, the idea was to make investors wealthy. It was to funnel household savings into state-owned enterprises or SOEs, as they call it, to fund national development. In other words, China's market was built as a financing tool for the state. It cared little for shareholders and that DNA never really changed since SOEs accounted for half the value of China's top 100 listed firms, even in 2023. And these companies care more about jobs and policy goals than about profits. They dilute investors by raising fresh equity whenever they want. Their governance is weak, their returns on equity are low.
2:07 Speaker 00 As an IMF study puts it, publicly listed Chinese state-owned enterprises are less productive and profitable than publicly listed firms in which the state has no ownership stake. In particular, Chinese listed SOEs are more capital intensive and have a lower average product of capital than non-SOEs. These productivity differences increased between 2002 and 2009 and remain sizable in 2019. Then, there's an oversupply problem. China has been one of the top rankers on global IPO charts for years. Policymakers loved it because it meant more money for their firms. But it didn't do much good for investors.
2:45 Speaker 00 Strict listing requirements even encouraged companies to opt for financial fraud, which also led to many delistings and all of this left investors and creditors burnt. This also meant limited foreign funds flowing in Chinese markets, which have always been tightly regulated. So, yes, you can see why the market has been sluggish for so long. And it shows up in household savings behaviour too. Chinese households save nearly 35% of their disposable income compared to about 4% in the US. Because, well, when markets underperform and lose trust, people stash away cash instead of investing. Now, China knows this is a problem and it wants to desperately change that.
3:25 Speaker 00 After all, it wants to meet economic growth targets and for that, you need to stimulate domestic consumption. And it seems it's been doing that. It's slashed stamp duty on stock trades, it's slowing down IPO approvals and even cracking down on financial fraud. It's even nudging firms to pay higher dividends and pushing its national team of state funds to buy billions worth of exchange-traded funds whenever markets look shaky. But does that even make a meaningful dent? Well, not really, because the real fixes could be harder. Take domestic demand for instance. China's growth has always leaned on investment and not consumption.
4:02 Speaker 00 It's been part of the nation's investment-led growth model it adopted in the 1980s, where the nation takes on massive public investments and suppresses household consumption. And it did make sense in the 1990s and 2000s since the country needed roads, ports, factories, airports. But, once those boxes were ticked, the model didn't stop. Capital kept flowing into projects with little payoff and as a result, debt ballooned faster than GDP. Meanwhile, households never picked up the slack. Savings stayed high, spending stayed low. For context, household consumption is just 40% of GDP in China compared to 60% in India. When investment stops, delivering and consumption can't take over.
4:45 Speaker 00 China is left relying on trade surpluses, selling more abroad than it consumes at home. And that's not a sustainable model when the rest of the world is slowing. Which also makes us ask, what has India done differently? Because back in the 90s, India and China were in far apart. India's per capita income was around $3.67 and China's was $317. But reforms changed the game. In India, liberalisation in 91 opened the gates for global capital. PSU disinvestment created investable assets. The RBI built a reputation for prudence in managing growth and stability. Rising incomes meant households finally had money left after essentials and those savings flowed into markets.
5:28 Speaker 00 So, unlike China's top-down props, India's bed was bottom-up and sticky. On top of that, India fixed the market plumbing. T plus one settlement across the market makes trades faster and safer. Now, these small, boring reforms add up to trust. And unlike China, India's market isn't dominated by state giants. Yes, PSUs do matter, but private firms drive the index. Pair that with rising corporate earnings and you get a market where profits are growing, but liquidity is growing even faster. And perhaps, that explains why the market valuations today are rich compared to China's. So, what do we make of all this?
6:08 Speaker 00 Economists have long argued that strong investor protection leads to deeper markets and higher valuations. And China's periodic crackdowns and SOE dominance explain its discount.
6:20 Speaker 00 There's also the question of maturity. Mature markets often deliver lower returns simply because they're already deep, liquid and efficient. Now, China here is a good example. From the 80s, it grew at roughly 10% a year for three decades, powered by an investment binge that built factories, roads and entire cities. But by 2010, the model began to exhaust itself. Each new yawn of investment delivered less economic return and, as we mentioned before, debt piled up faster than growth and that fatigue is reflected in the stock market too. China, by sheer size and depth, already looks like a mature market which doesn't have exponential growth on its side. So, the question is, can China's stock market come back? Possibly.
7:05 Speaker 00 If SOEs genuinely raise payouts, pensions grow into real long-term capital and households take home a bigger slice of GDP, the market can rerate. Some analysts even call it a value trap that could one day be a value opportunity. But there's one big caveat. Policy consistency matters more than cheap valuations. And maybe that's the message. The market's edge isn't just growth or liquidity, it's trust. And like compounding, trust only works if you don't break it.
7:37 Speaker 00 Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to [email protected] . Until next time.
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