Last Wednesday, China's stock exchanges witnessed a historic event: trading turnover reached a record 4 trillion yuan in a single day, equivalent to nearly $556 billion. For comparison, this exceeds the GDP of Switzerland or Poland. The CSI 300 index, which tracks China's largest companies, surged to a four-year high and currently shows the best annual growth since 2020.
However, this surge worries Chinese regulators. In 2015, a similar stock market boom was followed by a dramatic collapse—30% of market value was lost in a month, totaling $3 trillion in losses. A key risk is the high share of retail investors, accounting for about 90% of daily turnover. Many of these individuals lack sufficient experience, often act on emotion or rumors, and in some cases haven't completed secondary education.
Many new investors are also buying stocks on margin. Regulators fear that sudden market reversals could wipe out the savings of millions and destabilize the market. Authorities have already tightened margin requirements and required some companies to display risk warnings on their shares.
This trend partly stems from a massive government campaign after the 2008 financial crisis to encourage investment. Over 40 million new brokerage accounts were opened in a year, and state media promoted stories of ordinary people growing rich on the stock market. However, this enthusiasm has made the market vulnerable to speculation and potential crashes.
Chinese authorities are now seeking a balance between encouraging investment and reducing risks. There is a lack of widespread financial education programs, so regulators rely on indirect constraints rather than outright bans. The main problem remains investors' insufficient knowledge, which increases the risk of mass losses if the market trend reverses.
Experts stress the importance of financial literacy to prevent past mistakes from recurring. China faces a difficult situation: a sharp market halt could trigger panic, while inaction could inflate a dangerous bubble.
