The Market's Hidden Reality: Distorted Signals in Volume and Returns
Beneath the appearance of robust trading activity, concerns are deepening about the true health of China's A-share market. Economist Zhao Jian recently highlighted that two core indicators of a healthy bull market—genuine trading volume and broad-based profitability—have become significantly disconnected from reality.
The Illusion of Trading Volume
On the surface, market activity seems vigorous, with average daily turnover often exceeding 1.2 trillion yuan and sometimes surpassing 3 trillion. However, this impressive data masks a structural flaw. Quantitative trading strategies now account for more than one-third of total A-share turnover, a figure that can exceed 40% on some days. A substantial portion of trading volume is thus generated not by long-term, fundamental investment decisions, but by algorithm-driven short-term arbitrage. While this high-frequency trading inflates turnover figures, it does little to improve the market's genuine price discovery or long-term stability.
The Missing Wealth Effect
More alarming is the actual experience of most investors. In the first half of the year, fewer than one-third of the over 5,500 listed stocks posted gains, meaning nearly 70% declined. Market momentum has been narrowly concentrated in a handful of sectors like AI computing, leaving most industries and companies behind. Zhao Jian argues that when market gains are supported only by isolated pockets while the majority of participants lose money, it resembles a "structural bubble" more than a broadly healthy bull market.
The Retail Investor Dilemma: Deepening Losses
The situation for ordinary investors is particularly severe. According to a recent joint survey, between 79% and 82% of active retail trading accounts are currently in the red, with less than one-fifth showing a profit. The old market adage of "seven lose, two break even, one wins" has been brutally updated to "eight lose, one breaks even, one wins."
On average, retail investors saw a paper loss of 23.6% in the first half, translating to an average unrealized loss of approximately 21,000 yuan per account, with the median loss at 25%. For small investors with portfolios under 100,000 yuan, the loss rate approached 100%. These figures starkly show that the brunt of this market downturn has been borne by retail investors with limited capital and weaker risk resilience.
The Call for Decisive Policy Action
Faced with fragile market confidence and the risk of a negative feedback loop between stocks and property, Zhao Jian stresses the need for immediate, decisive, and unexpectedly strong policy action, surpassing the scale of past interventions. He proposes a multi-pronged approach:
- Direct Liquidity Support: The central bank should provide liquidity directly, expanding its securities lending facility from 500 billion yuan to 2 trillion yuan or more, signaling an "unlimited" backstop to eliminate liquidity fears.
- Managing Supply: Temporarily halt new share listings (IPOs) and secondary offerings to relieve short-term pressure on market capital.
- Correcting Trading Mechanisms: Introduce urgent measures to restrict high-frequency quantitative trading, such as raising costs or suspending programmatic trading, to reduce its short-term disruptive impact on market sentiment.
- Anchoring Expectations: Establish a clear market stabilization mechanism akin to a "market stabilization fund," with mandates for state-backed institutions to buy decisively during irrational panic selling, sending a clear signal of a "policy bottom."
- Breaking the Negative Cycle: Roll out strong, synchronized policies to stabilize the property market—including housing purchases by state entities, mortgage rate cuts, and lifting purchase restrictions—to prevent a spiral between falling stock and property prices and stabilize household balance sheet expectations.
- Bringing in "Long-Term Money": Substantially raise the investment ceiling for long-term capital like pension and insurance funds, coupled with tax incentives, to guide more patient capital into the market. This would help stabilize valuation benchmarks and foster a value-investing culture.
The core of Zhao Jian's argument is that the current market issues are systemic, relating to confidence and liquidity. Rebuilding order, stabilizing expectations, protecting investors, and laying a foundation for sustainable growth requires a coordinated "policy package" that goes beyond conventional measures.