To Get Rich on Stocks Is Glorious

How China plans to capitalise upon its stock market boom to supercharge domestic consumption.

Long considered the defining symbol of capitalist excess, the stock market is now viewed by China’s Communist Party as an expedient means for achieving more egalitarian wealth distribution.

China hopes to use its tech-driven stock market boom to boost domestic consumption, by capitalising upon the wealth effects of rising asset prices.

Top policymakers also expect changes in the structural composition of Chinese household assets to completely change the impact of long-term low interest rates on wealth distribution.

During the Hu-Wen era of the early 21st century, low interest rates undermined Chinese household wealth, by suppressing incomes in the form of returns on bank deposits.

As Chinese households increasingly become invested in the stock market, however, long-term low interest rates have the potential to augment wealth levels, by boosting the values of their financial assets.​

Beijing fixated on the rise of China’s stock market

Guan Tao (管涛), chief economist at Bank of China’s investment banking vehicle, says Beijing has been preoccupied with driving the development of the nation’s capital markets in the wake of the Covid pandemic.

China’s financial system has long been dominated by the state-owned banking system, with capital markets, in the form of stocks and bonds, playing a comparatively minor role in the allocation of funds.

According to Guan, this “imbalance in China’s financial structure” has long been embodied by “a large volume of debt and a small volume of principal” - a reference to bank loans serving as the primary vehicle for financing, with equity financing playing a far smaller role.

Guan argues that policymakers are now intent upon correcting this imbalance, giving greater play to the role of both the bond and stock markets in the funding of China’s future economic development.

“Raising the share of direct financing - and equity financing in particular, has always been a key goal for the reform of China’s financial system,” he writes in an opinion piece for Diyi Caijing (“管涛：低利率时代更加呼唤资本市场高质量发展”).

At the end of 2023, China’s Central Financial Work Conference called for “better employing the core function of the capital markets” as well as “optimising the financial structure.”

Guan writes that successive policies since then have “sent clear policy signals” on Beijing’s firm determination to raise the share of capital markets in China’s overall financial system.

In 2024, the Chinese central government implemented the “New National Nine Provisions” (新国九条) and the “1+N policy system” comprised of a series of policies aimed at “optimising the capital market ecosystem from either side of the financing and investment relationship.”

These measures included improving the quality of listed companies, encouraging the payment of more dividends to investors, guiding long-term capital to enter the market, promoting high-quality development of the mutual fund sector, and strengthening investor protections.

As of the end of July this year - amidst the turmoil and uncertainty generated by Trump’s tariff war, a meeting of China’s Politburo continued to stress the need to “strengthen the attractiveness and inclusiveness of the domestic capital market,” as well as “consolidate the stabilisation of capital markets towards positive momentum.”

China’s retail investors shift towards stocks

Beijing’s concerted push to drive the growth of the Chinese stock market arrives just as more of the nation’s retail investors migrate towards equities.

A key driver of this has been China’s low interest rate environment - which has persisted into the mid-2020s, despite the world’s other major economies hiking their rates to deal with painful post-Covid inflation.

This has depressed the returns on deposits at Chinese banks, prompting Chinese retail investors to search for more lucrative options elsewhere - whether it be in the form of wealth management products (WMPs) also sold by commercial lenders, or direct investments in other financial assets.

The resounding performance of Chinese shares listed on both mainland exchange and in Hong Kong since the start of 2025 has also served as a strong enticement for investors to enter the domestic stock market.

Guan Tao forecasts that this will be an enduring phenomenon, which results in a long-term structural change to the asset holdings of Chinese households.

He expects their ownership of financial assets tied to the capital market to increase - particularly given the long-standing policy of the Chinese government under Xi to suppress undue levels of speculation in the real estate market.

“Currently, the composition of Chinese household wealth is characterised by more immovable assets (real estate) and fewer movable assets,” he writes.

“As the policy that ‘houses are for occupation not speculation’ continues, household asset allocation is becoming increasingly diversified, and gradually shifting from immovable assets to movable assets.

“Within movable assets, it’s gradually shifting from deposits to non-deposits (stocks, mutual funds and bonds).”

Asset-price wealth effects hoped to drive consumption

This structural change in the asset holdings of Chinese households gives Beijing an effective channel for advancing its long-touted goal of raising levels of domestic consumption.

Beijing has been heavily preoccupied with boosting end consumption in the post-Covid era, viewing it as an ideal means of accessing a robust source of macroeconomic demand.

The imperative for China to consume has becomes more acute, as worsening trade relations with Washington cast a shadow over the export sector,and the continued use of high investment levels to drive growth becomes untenable.

General consensus within China is that the best means of raising domestic consumption will be to reduce wealth inequality and increase household incomes - particularly amongst lower-income demographics.

The prevailing opinion amongst policymakers is that Beijing can help to achieve this growth in household incomes, and thus consumption, by using the wealth effects generated by a rise in the asset prices.

“Expanding domestic demand - and boosting end consumption especially, is the only path forward,” Guan writes.

“Consumption is a function of income, and income from assets is one of the four main income sources for households.”

From a policy perspective Beijing, has made it a nominal priority to nurture the asset-based incomes of Chinese households for almost two decades.

The 17th National Congress of the Communist Party held in 2007 first called for “creating the conditions for more of the masses to possess income from assets.”

The 14th Five Year Plan (2021 - 2025) covering the first half of this decade stated that “multiple channels will be used to raise the asset-based income of urban and rural households.”

Despite changing circumstances and policy priorities, this focus on boosting asset-based income has continued in 2025.

The “Special Action Plan to Spur Consumption” (提振消费专项行动方案) released earlier this year stressed the role of raising incomes - and asset-based income in particular - as a key means of driving Chinese end consumption.

It called in particular for further “expanding the channels for asset-based incomes.”

Capitalising upon the wealth effects created by a rise in asset prices is only possible, however, if Chinese households invest in a significant volume of equities and other financial assets - as they are prompted to do now as a result of both low interest rates and the health of the stock market.

The impact of low interest rates reverses

If financial assets outside of bank deposits comprise an increasing share of the wealth of Chinese households, then this promises to change the impact of low interest rates on their levels of affluence.

It also means changes to the types of macroeconomic policies Beijing needs to implement, if it wants to achieve wealth effects that have a salutary effect on consumer spending.

During the first decade of the 21st century, China implemented a policy of financial repression that kept interest rates low for both deposits and loans.

This made financing cheap for Chinese enterprises, during a period of surging growth in the manufacturing and export sectors.

This period of financial repression is believed to have undermined the wealth levels of Chinese households and exacerbated economic inequality, by reducing the returns on the bank deposits that comprised the mainstay of their financial assets.

If the assets of Chinese households undergo a shift towards greater holdings of equities, mutual funds and bonds, this will completely reverse the impact upon their wealth of low interest rates. This is because lower interest rates tend to buoy the value of these asset classes.

Guan expects China to maintain low interest rate settings for the indefinite future - as geopolitical uncertainties wrack the global economy, yet Beijing remains committed to ambitious medium-term growth targets.

All of this bodes well for China’s capital market, as well as Beijing’s efforts to drive wealth effects amongst a growing demographic of retail investors.

“At present, China’s monetary policy settings are supportive, and quantitatively they’re also quite loose, with key interest rates all at historic lows,” he writes. “I forecast that in future low interest rates could continue for some time.

“In the era of low interest rates, the high-quality development of China’s capital markets is especially important.”

Enhancing the effectiveness of Chinese monetary policy

Structural changes in China’s financial system as well as its household asset structure won’t just alter the way low interest rates affect levels of wealth and consumption.

The effectiveness of monetary policy transmission could also be greatly enhanced by the shift from bank loans to capital markets in China’s broader financial system, and from bank deposits to capital market assets amongst Chinese households.

Guan points out that the specific composition of household wealth holdings can make a huge difference to the effectiveness of monetary policy.

“The reason America’s ‘zero interest rate plus quantitative easing (QE)’ monetary policy has been more effective than that of Japan and Europe is related to its financial market structure,” he writes.

“In the US, 80% of financing is direct and 20% is indirect, while in Japan and the Eurozone financing is 50% indirect, and in China it’s 70%.

“In the US, low interest rates can be transmitted through the stock and bond markets, generating a significant wealth effect, which in turn boosts investment and consumption.

“In China, even though the stock market has benefited from monetary easing and has risen, the positive wealth effect is less pronounced due to the low share of stocks in household wealth.”

China needs to grow the bond market as well

In addition to placing greater emphasis on capital markets, Guan says China also needs to expand the role of the bond market in order to fully enhance the effectiveness of monetary policy.

According to Guan, underdeveloped bond markets have long been one of the characteristic shortcoming of not just China, but East Asian economies in general.

“It is worth noting that Asia’s capital markets have long suffered from a problem of prioritizing the stock market over the bond market,” Guan writes.

“Because debt financing in Asia is primarily based on bank credit, a failure in the banking system can paralyze the social financing system.

“Therefore, one of the lessons learned from the Asian financial crisis is to vigorously develop the Asian bond market.

“China faces a similar problem. As a consequence, while corporate bond financing costs have fallen, corporate credit issuance is low.

“In fact, the weak economic environment has made it even more difficult for companies to raise funds in the bond market. Ultimately, companies still rely primarily on bank loans.”

Guan argues that developing China’s bond markets will enable the economy to overcome the tepid levels of credit growth that have prevailed in the financial system, despite the Chinese central bank imposing low interest rates.

This will enhance the ability of the central bank’s monetary policy to adjust credit creation and have a meaningful impact on China’s macro-economic health.

“The current problem that China faces of ‘enterprises being reluctant to borrow and banks being cautious about lending’ is neither unique to China nor a new phenomenon,’ he writes.

“The transmission of low interest rates through bank credit channels in general faces obstacles.

“On the one hand, there is insufficient effective financing demand from the real economy, and on the other, there is a lack of enthusiasm amongst the banks as intermediaries to lend.

“Only by vigorously developing direct financing - including equity and bond financing, and enriching a multi-layered and decentralized financing structure, can we enhance the resilience of the financial system, better facilitate the flow of funds into the real economy, and improve the efficiency of monetary policy transmission.”