The Truth Behind the Recent A-Share Rally

Hello, everyone! Today we’re diving into the economy.

Have you noticed that the recent A-share market has been acting… a bit strange?

From a low of 3,040 points in April, the market has been climbing steadily for three months straight. By July, it smashed through 3,500 points, breaking the long-standing “Shanghai Composite can’t break 3,500” curse that’s been tested time and again.

But when you look at the economic data released for the first half of the year, it paints a different picture:

• From January to June, the total profits of industrial enterprises above a designated size nationwide reached 3.4365 trillion yuan, down 1.8% year-on-year, with joint-stock enterprises seeing a 3.1% decline.
• The Consumer Price Index (CPI) dropped by 0.1% year-on-year in the first half.
• The growth rate of total retail sales of consumer goods lagged behind GDP.
• The economy continues to rely on the same old drivers: investment, exports, and stimulus.

Doesn’t this feel odd? The economic data is chillingly cold, and there’s been no substantial progress in reforms, yet the stock market is scorching hot.

So, who’s footing the bill for this rally? Who’s pulling the strings? Is this truly the “start of a bull market,” or is it just a “policy-driven illusionary bubble”?

Today, let’s uncover the truth behind this A-share rally.

What Makes a Healthy Bull Market?

To understand whether this rally is sustainable, we first need to ask a key question: In a healthy market, how do you distinguish a “long-term bull market” from a “speculative gamble”?

Generally, a true long-term bull market follows one of two classic paths:

1. Fundamentals-Driven Growth: This happens when the macroeconomy is thriving—consumption is rebounding, investments are increasing, and corporate profits are steadily rising. This naturally lifts stock prices, creating a solid “earnings-driven bull market.”

2. Expectation-Driven Growth: The market picks up on policy signals or turning points, and funds rush in early, driving the stock market upward first. This creates a “the ducks sense the warming river before spring arrives” scenario. If the economy later improves and corporate profits catch up, this rally gains real support.

While these two paths differ in their sequence, they share one thing in common: the stock market and the economy must eventually align.

But what happens if a third scenario occurs?

When the stock market rises, but the economy doesn’t improve, and corporate profits decline instead of growing? That’s not a bull market—it’s a “liquidity bubble.” It’s not the arrival of spring; it’s a false flame in the depths of winter. The higher the market climbs, the greater its divergence from the real economy, and the more fragile the bubble becomes.

A Closer Look at the A-Share Rally

Let’s examine the A-share market’s trajectory. If you pull up the K-line chart, you’ll notice something peculiar around April 9th. On that day, the U.S. officially imposed a so-called “reciprocal tariff” policy, slapping punitive tariffs of 125% to 145% on Chinese exports—a direct hit to trade.

By all accounts, the stock market should have plummeted, perhaps even with a “deep green dive.” But what happened? Instead of falling, the A-share market surged, posting a solid long red candlestick. That’s intriguing.

An external shock so unfavorable to exports didn’t trigger panic in the capital markets but instead sparked the start of a rally? That’s abnormal. So, who’s behind it?

Data shows that on April 8th and 9th alone, Central Huijin, a state-backed investment entity, poured 200 billion yuan into A-shares. This was just a fraction of the “national team’s” efforts, which also include China Securities Finance Corporation (CSFC), the State Administration of Foreign Exchange (SAFE), and insurance funds. To put this in perspective:

During the 2015 stock market crash, the national team deployed about 1.5 trillion yuan to stabilize the market—a historic systemic rescue. Yet, in just two days in April, Central Huijin’s 200 billion yuan injection was equivalent to one-eighth of that 2015 rescue. If you include CSFC, social security funds, and local state-owned assets, the scale could approach a third of the 2015 effort.

More crucially, after April 9th, the A-share market began showing clear signs of “market propping.” Many investors noticed a strange pattern in April and May: the market would dip in the morning but get pulled up by the close—a daily script. It felt like an invisible hand was “protecting the market,” signaling that “3,000 points is China’s policy floor.” Whenever the index neared 3,000, stabilizing funds would step in; whenever it fell toward the close, ETFs would pull it back up.

This clear signal wasn’t lost on savvy capital. “Buy around 3,000 points” became a near-consensus. Morning dips? Perfect buying opportunities, as mysterious funds almost always lifted the market by the close. This “buy early, pull late” rhythm played out repeatedly, fostering a kind of “policy-driven bullish faith”: as long as the index neared 3,000, the national team would act, and if it dipped in the morning, it would rise by the close.

This is the real reason behind the sustained A-share rally: it’s not driven by a recovering real economy but by a “policy-backed, liquidity-driven” rally fueled by funds playing the game.

The Role of ETFs in This Rally

At the heart of this rally lies a key vehicle: ETFs. Let’s look at some staggering data:

• In 2022, China’s ETF market was worth about 1 trillion yuan.
• By Q2 2025, it ballooned to roughly 6 trillion yuan. Who’s the main driver? Central Huijin.

Data shows Central Huijin alone holds 1.16 trillion yuan in ETF assets—over one-sixth of the total ETF market. This means the explosive growth of China’s ETF market over the past three years wasn’t driven by retail investors or organic market growth—it was “smashed” into existence by state funds. More precisely, the national team used ETFs as a “market control tool,” buying up ETF shares to prop up indices and draw in outside capital.

You’ve heard of the “national team stepping in,” but do you know how much firepower they wield? According to authoritative data from People’s Daily, as of Q1 2025, Central Huijin held stakes in 152 listed companies, with a total market value of 3.02 trillion yuan. Add their 1.15 trillion yuan in ETF assets, and Central Huijin controls 4.17 trillion yuan in stock-related assets.

To put that in context: China’s A-share market (Shanghai and Shenzhen combined) has a total market cap of about 86 trillion yuan. That means Central Huijin alone controls nearly 5% of the A-share market.

The Macro Picture: A Disconnect

Now, let’s look at the macroeconomy. In the first half of 2025, China’s GDP grew by 5.3% year-on-year—the most “presentable” economic indicator, frequently cited by media and institutions. But we have to ask: where did this 5.3% come from? Consumption? Corporate vitality? Export-driven global dividends? Let’s break it down.

1. Consumption

Total retail sales of consumer goods reached 24.55 trillion yuan, up 5.0% year-on-year. Sounds decent? But GDP grew by 5.3%, meaning consumption lagged behind GDP growth. This indicates that consumer spending power hasn’t truly recovered, domestic demand remains weak, and the government’s efforts to stimulate consumption over the past two years have fallen short.

2. Investment

Fixed asset investment grew by 5.9% in the first half of 2025. Breaking it down:

• Infrastructure investment rose by 7.3%, a clear sign of government-led support.
• Manufacturing investment grew by 4.8%, slower than GDP, signaling weak corporate investment confidence.
• Real estate development investment fell by 9.6%, showing the sector is still in deep adjustment.

In plain terms: the government is propping up the economy, businesses are pulling back, and real estate is flat on its back. Infrastructure is single-handedly dragging the team forward, while manufacturing lags and real estate lies dormant. The 5.9% investment growth, while higher than GDP, is driven by government leverage through infrastructure, not organic market growth.

3. Imports and Exports

Total goods trade reached 21.79 trillion yuan, up 2.9% year-on-year. Decent? Not quite—last year’s growth was 7.1%, so this is a sharp drop. Exports grew by 7.2% to 13 trillion yuan, while imports fell by 2.7% to 8.79 trillion yuan. What does this mean?

Exports reflect China’s production capacity—busy factories and strong foreign demand. Imports reflect domestic consumption, especially among middle- and high-income groups. Rising exports and falling imports suggest China is still selling abroad but can’t afford to buy as much. Declining imports signal shrinking consumption among the middle class and above, as well as reduced purchasing power for high-quality goods.

These data reveal a deeper issue: Chinese confidence—whether in consumption, investment, or future income expectations—hasn’t truly recovered. People are still “tightening their wallets and watching cautiously.”

Corporate Profits and Liquidity

According to the National Bureau of Statistics, from January to June, industrial enterprises above a designated size posted profits of 3.4365 trillion yuan, down 1.8% year-on-year, with joint-stock enterprises down 3.1% at 2.533 trillion yuan.

Looking at liquidity, June saw broad money supply (M2) grow by 8.3% and narrow money supply (M1) by 4.6%, suggesting sufficient liquidity and reduced money idling. But is that the full story?

A closer look at the People’s Bank of China’s financial statements reveals a concerning detail: in January 2025, non-bank payment institutions held 3 trillion yuan in client reserve funds (money in platforms like WeChat and Alipay). By June, this dropped to 2.4 trillion yuan—a 600 billion yuan decline in six months. This means the cash in people’s digital wallets is shrinking, reflecting a decline in disposable liquidity.

On the deposit side, by June 2025, total demand deposits reached 98 trillion yuan, but this figure now includes both household and corporate deposits. In 2024, demand deposits (then only corporate) totaled 54 trillion yuan. Based on the latest PBOC data, household demand deposits are 43.36 trillion yuan, leaving corporate demand deposits at roughly 55 trillion yuan. Calculating M1 growth using the old corporate-only metric yields a real M1 growth rate of just 1.85%. This suggests money is still “sitting idle” rather than flowing into real investment or production.

The Reality: A False Flame

The stock market is rising, but consumption isn’t. Investment is lopsided, corporate profits are sliding, and corporate demand deposits are stagnant. Liquidity remains idle.

What we’re seeing isn’t “spring’s arrival” but a “false flame in winter.” The A-share market’s three-month rally looks lively, but it’s driven by:

• The national team guarding the 3,000-point policy floor.
• ETFs used as a mechanism to prop up indices.
• Market speculation banking on “policy faith” rather than economic fundamentals.

This isn’t the “start of a bull market”; it’s an “artificially engineered rally.” A true bull market requires a full recovery in confidence, consumption, investment, and profits—not daily closing pumps or K-line theatrics.

When corporate profits shrink while market valuations soar, this contradiction can’t sustain a long-term bull market.