How China’s stock market is blocking Trump’s trade goals

China’s sprawling stock market, valued at nearly $11 trillion, has become a mounting concern for both President Xi Jinping and U.S. President Donald Trump – but for entirely different reasons. For Xi, it’s a barrier to unlocking domestic consumption. For Trump, it’s a symbol of China’s skewed financial priorities amid escalating trade tensions, Bloomberg reported on Sunday. 

Chinese equities have delivered dismal returns over the past decade. Even after a recent uptick, key indexes like the CSI 300 have only just climbed back to levels seen after the last major crash. A $10,000 investment in that index would’ve grown by just $3,000 over 10 years, compared to a tripling in value had the same amount been invested in the S&P 500.

Weak market, strong savings

The lackluster equity performance is shaping Chinese consumer behavior. With unreliable returns, households are saving rather than spending – pushing the savings rate to 35% of disposable income. That undercuts Xi’s plan to drive growth through domestic demand, especially as China faces higher U.S. tariffs and cooling export momentum.

The roots of the issue, the report said, lie in the stock market’s original purpose. Created in the late 1980s to funnel household wealth into state-driven industrialisation, the exchanges prioritised capital formation over investor returns. That dynamic persists.

“China’s capital market has long been a paradise for financiers and a hell for investors,” Liu Jipeng, a securities expert told Bloomberg. “Regulators and exchanges are always consciously or unconsciously tilting toward the financing side of the business.”

Retail distrust, regulatory gaps

Retail investors remain wary, not least because of poor governance and post-listing practices. Asset manager Chen Long noted that “many ordinary people come in thinking they could make money, but the majority of them end up poorer.” According to him, state-owned firms focus more on government goals than on shareholder returns, while private firms often neglect smaller investors.

Reform efforts have led to some visible progress. According to the report, the number of new stock listings dropped by one-third last year, indicating tighter scrutiny of IPOs. In addition, listed companies paid out a record 2.4 trillion yuan ($334 billion) in cash dividends in 2024 – a sign that regulators are encouraging firms to reward shareholders. 

However, deeper structural problems remain. Chinese companies still lag far behind their U.S. counterparts when it comes to share buybacks. Firms on the CSI 300 index spent just 0.2% of their market value on buybacks in 2024, compared to nearly 2% by companies on the S&P 500.

Xi’s dilemma, Trump’s tariff war

China’s leadership has recently begun acknowledging the problem. High-level Politburo statements now include references to stock market stability, something rarely seen before. Yet even this renewed attention hasn’t reversed the perception that China’s equity markets are designed more for capital-raising than for investor protection.

“There are few who are motivated to protect investors’ interests,” said economist Lian Ping. The pressure to fund China’s tech ambitions — especially in semiconductors and AI — means regulators are again fast-tracking listings, including unprofitable firms. IPO volumes are already up 30% this year.

Hebe Chen of Vantage Markets warned: “Fast-tracking more firms to list without tackling the core problems of corporate credibility will just add volume without restoring investor trust.” 

Meanwhile, Washington has intensified scrutiny on how China funds its tech sector, adding further complexity to the cross-Pacific standoff. But even Trump’s tariffs may not bite as expected – because consumer demand in China, already held back by weak equity confidence, remains stubbornly low.