Key Points
- China’s stock market is rebounding, outperforming US markets in early 2025.
- The CSI 300 Index has risen 5% year-to-date, while the S&P 500 has dropped nearly 10%.
- Beijing has shifted to a pro-business stance, supporting technology-driven growth.
- China is emphasizing domestic demand, signaling a shift from export-driven growth.
China’s stock market is making a strong comeback, challenging the widespread belief that the world’s second-largest economy is no longer investible. While Wall Street remained bearish on China throughout 2023, the country’s markets have outperformed US peers.
A year ago, investors abandoned Chinese stocks, driven by fears of deflation, high unemployment, and rising debt. Foreign direct investment hit its lowest level since 1992, and the CSI 300 Index plunged over 45% from its 2021 peak.
However, in early 2025, Chinese stocks saw a strong rally, with large-cap stocks posting their best annual start since 2002. While the S&P 500 has declined nearly 10% from its February high, the CSI 300 has climbed 5% year-to-date, surpassing its mid-December high.
The turnaround has prompted analysts to examine the situation more closely. Citi upgraded China stocks to “Overweight” while downgrading US stocks to “Neutral.” Meanwhile, Bank of America has predicted that China’s tech sector will outperform US markets this year.
China’s tech industry, previously burdened by regulatory crackdowns since 2020, is now benefiting from a new pro-business stance by the Chinese government. President Xi Jinping signaled his support for the tech industry during a major symposium in February, reinforcing Beijing’s shift toward technology-driven growth.
During China’s recent “Two Sessions” policy meetings, officials emphasized their commitment to stimulating and deregulating the tech industry. This shift has boosted Chinese AI-linked stocks, especially after the launch of DeepSeek and other AI tools, challenging US dominance in artificial intelligence.
Despite the stock market rebound, structural economic challenges remain. China’s real estate sector remains heavily indebted, and consumer confidence is still weak. While the government is now focusing on domestic demand and private consumption, no major policy changes have been introduced yet.
Recent government efforts to ease consumer loans have lifted market sentiment, suggesting that Beijing is actively working to stabilize the economy. The real test will be whether China can sustain 5% GDP growth without relying heavily on exports.
