President Xi and Trump Push for Spending, But Chinese Still Prefer to Save

China’s economy faces a deep-rooted challenge – households are reluctant to spend. Despite efforts by President Xi and Donald Trump, families continue to hoard cash in banks rather than invest in stocks or boost consumption.

Weak stock market keeps households cautious According to Bloomberg, even after a recent rebound, Chinese stock indexes have only returned to the levels seen a decade ago after the last major downturn. Over the same period, a $10,000 investment in the S&P 500 would now be worth more than $30,000, while in China’s CSI 300 it would have grown to only about $13,000. The roots of the problem are structural. About 35 years ago, Chinese stock exchanges were designed mainly to raise money for state projects, not to reward investors. This focus led to an excessive number of IPOs, poor post-listing practices, and weak investor protection. Today, China’s stock market is worth around $11 trillion, but confidence remains fragile.

Xi needs spending, not just capital Beijing is struggling to hit its ambitious 5% GDP growth target. President Xi is relying on domestic consumption while also funneling capital into strategic technology firms, though their profitability is far from guaranteed. Household savings remain stubbornly high at 35%, limiting the impact of government efforts. This year, the CSI 300 has risen less than 7% despite AI enthusiasm, far underperforming the U.S. and European indexes.

Experienced investors warn newcomers Asset manager Chen Long used Xiaohongshu to warn retail traders: “Many people come in thinking they can make money, but most end up losing.” According to him, state-owned companies answer primarily to the government rather than shareholders, while many private entrepreneurs pay little attention to small investors.

Politburo shifts stance In December, China’s Communist Party Politburo made an unusual move by pledging to stabilize not just the housing market, but also the stock market. In July, it went further, calling for more “attractive and inclusive domestic capital markets.” But economists say only a stock market revival can quickly restore investor trust. “This is the main topic we economists discuss in closed-door meetings in Beijing,” said Hao Hong, CIO at Lotus Asset Management.

Reform after years of weak oversight The challenges go back decades: exchanges have focused more on funding firms than protecting investors. A boom in IPOs made China the world’s largest stock market in 2022, but fraud, weak enforcement, and manipulation caused price crashes and capital flight. One example is Beijing Zuojiang Technology, listed in 2019. In 2023 it claimed its product was based on Nvidia’s BlueField-2 DPU, but the following year it warned of delisting amid a disclosure probe and was eventually removed from Shenzhen’s exchange. Since then, regulators have tightened oversight: stricter vetting of applicants, tougher anti-fraud enforcement, limits on secondary share sales, and pressure for higher dividends.

First results are emerging IPO volume in 2024 fell to just one-third of 2023 levels. Meanwhile, companies in Shanghai and Shenzhen paid out 2.4 trillion yuan ($334 billion) in cash dividends last year, a 9% increase from 2023. “Post-IPO rules have become much stricter – companies must now be more reliable, transparent, and open with disclosures,” said Ding Wenjie, strategist at China Asset Management.

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