As global capital trickles back toward China, policymakers are signalling they want growth without the froth, using tougher enforcement and cooling measures to slow the market’s pace in order to strengthen its appeal in the long term.
With fund managers now seeking to diversify away from dollar-heavy portfolios, Beijing’s calibrated approach could help reverse years of retreat when some investors even called the country “uninvestable”.
Analysts say these measures highlight the growing importance of the financial sector, particularly as China seeks to attract global capital amid a challenging geopolitical environment.
“A rising stock market helps fund China’s technology advancement, enhances people’s wealth, and aids economic growth,” said Meng Lei, UBS China strategist.
The China Securities Regulatory Commission (CSRC) cracked down on speculators, opens new tab last month after the Shanghai Composite Index hit 10-year highs on record turnover driven by leverage bets in a sign of overheating.
Over the past month, the Shanghai and Shenzhen stock exchanges handled more than 2,000 cases of irregular trading, including “pump-and-dump” schemes and spoofing, marking a monthly record in enforcement activity.
Regulators also meted out a 41-million-yuan ($5.92 million) fine to a local hedge fund for illegal fundraising and misappropriation of investors’ money.
Broader cooling efforts include tightening margin financing rules, curbing high-frequency traders’ access to exchange data, and curtailing stock-picking “influencers.” Sovereign funds, meanwhile, have pared back equity holdings.
“The art of the slow bull is in effect,” fund consultancy Z-Ben Advisors said. The market is entering a self-sustaining cycle as “dynamics suggest a growing level of confidence in market depth from regulators and investors alike.”
Chinese President Xi Jinping outlined in a speech published last month his vision to build a robust financial system supported by powerful regulators and “global reserve currency status” for the yuan.
China’s benchmark Shanghai Composite Index gained 18% in 2025, its strongest performance in six years, outperforming a 16.4% rise in the S&P.
The CSRC did not reply to a Reuters request for comment.
‘WARNING CALLS’
In the commodities futures market, regulatory actions have also intensified following a surge in metal prices. Measures included raising margin requirements and capping the number of new positions traders can open.
In a rare move, state-backed investors, typically seen as market rescuers, divested stocks to temper the rally.
Exchange-traded funds (ETFs), used by sovereign fund Central Huijin as a tool to steer markets, witnessed net outflows exceeding 700 billion yuan last month, according to Z-Ben Advisors.
The crackdown on speculators has not weighed on sentiment as heavily as measures implemented in the past.
“Substantial yet well-paced selling by the National Team is curbing – but not killing – the positive market momentum,” Laura Wang, chief China equity strategist at Morgan Stanley, said in a note, adding that “market dynamics remain on a healthy track.”
To boost financial strength, “you need a steadily rising currency and steadily appreciating asset prices,” said Yuan Yuwei, Hong Kong-based fund manager at Trinity Synergy Investments.
Some market participants are taking the measures to prevent another boom-and-bust cycle seriously.
