Since the founding of China’s stock market with the Shanghai Stock Exchange and the Shenzhen Stock Exchange in 1990, China’s economy has experienced tremendous growth. Hence, one would expect China’s stock returns to be equally fruitful, as stock market performance is normally closely tied with a nation’s economic performance. However, that is not the case. China’s stock market has not been the beacon of gold which investors might expect. However, until 2023, Chinese stocks listed on foreign exchanges, like the NYSE or the HKSE, significantly outperformed stocks listed on Chinese exchanges. Although, this has shifted in recent years due to less growth in Chinese consumer tech spending, the US-China tech decoupling, and stringent US-audit rules (such as the Holding Foreign Companies Accountable Act).
There are many reasons for the Chinese Stock Market’s performance not keeping up with the economy, on which this article will elaborate. But first, its important to understand the basics.
The basics of the three Chinese stock exchanges
The three main stock exchanges in China are the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the Beijing Stock Exchange (BSE). Only around 5% of Chinese company financing comes from equity, and companies rely much more on bank loans and retained earnings with only around 7% of Chinese owning stocks.
The Shanghai Stock Exchange
While established in 1990, Shanghai’s history as a financial center goes as far back as the 1860’s when stock trading first started in the city. As of July 2026, the Shanghai Stock Exchange market cap is 64.5 trillion CNY, or around 9.5 trillion US. According to the World Federation of Exchanges (WFE), the Shanghai Stock Exchange ranks 3rd in terms of total market capitalization, only after NYSE and Nasdaq – US.
Within the SSE is the Science and Technology Innovation Board, also known as the STAR market, announced in 2018. The STAR market is “committed to supporting sci-tech and innovative enterprises that align with national strategies, hold core and breakthrough technologies, and enjoy a high degree of market recognition.” As of July 2026, the STAR market had a market cap of 13 trillion CNY (1.92 trillion US) with over 600 listed companies.
The Shenzhen Stock Exchange
The Shenzhen Stock Exchange is the world’s sixth-largest stock exchange by market capitalization, at 43.5 trillion CNY (9.5 trillion US) in July 2026. The SZSE tends to list smaller and more emerging-sector companies compared to the SSE. Aside from the SZSE’s main board, it also hosts the SME Board, and the ChiNext Market.
Established in 2004, the SME board serves companies with well-defined businesses and stable profits. As many of the enterprises on this board are manufacturing companies, the SME Board can be seen as a barometer of China’s manufacturing sector.
The ChiNext Market, established in October 2009, focuses on innovative growth companies and startups. These areas of innovation include technology, management, and business models.
The Beijing Stock Exchange
Launched in November 2021, The Beijing Stock Exchange focuses injecting capital into SMEs to boost strategic and high-tech industries. As of July 2026, with a market cap of 942 billion CNY (139 billion US).
How foreign investors can buy Chinese stock
Since its founding, there has always been hurdles in place for foreign investors to buy Chinese stocks. For one, only Qualified Foreign Institutional Investors (QFII) are also allowed to participate the Shanghai and Shenzhen Stock Exchanges with special permission. In 2019, in a move to attract more foreign capital and offset rising outflows, Beijing scrapped the foreign investment quota.
Foreigners can also access the Chinese stock market through stock connects, such as the Shanghai-Hong Kong Stock Connect, the Shanghai-London Stock Connect, or the Shenzhen-London Stock Connect.
Why do Chinese Stock Exchanges not keep up with economic growth?
According to Keyu Jin’s book The New China Playbook, there are two factors causing China’s stock exchanges to perform so poorly: What happens before the listing and what happens after the listing.
Chinese Stock Exchanges’ arduous selection process bottlenecks strong players
One key criterion is that a company hoping to IPO needs to prove that they’ve had three years of consecutive profit prior to the IPO. Only after they have met this criteria, Chinese companies still need to gain the approval of the Chinese Securities Regulatory Commission (CSRC), which can take years. During these years, there is room for firms with closer government relations to gain privileges inaccessible to firms that lack political guanxi but would be a better bet. Also, a consequence of the slow and arduous process is that some firms will seek to be listed elsewhere. Top performing firms like Alibaba, Pinduoduo, and many other tech firms all decided to be listed in foreign exchanges. As of mid-2021, American Stock Markets hosted US $2.1 trillion worth of Chinese companies.
Since 2023, this bottleneck has only tightened. In February 2024, the CSRC actually raised the profit bar for main-board IPOs, increasing the three-year cumulative net profit requirement from ¥150 million to ¥200 million, and the latest-year requirement from ¥60 million to ¥100 million. While the STAR and ChiNext markets technically allow unprofitable tech companies, approvals on those boards have become far more selective since 2024, with regulators increasingly prioritizing state-aligned “hard-tech” sectors (semiconductors, biotech, AI). Consequently, further incentivizing growth-stage Chinese firms to seek listings in Hong Kong or the US rather than navigate an even more demanding domestic IPO gauntlet.
Poor performers don’t get de-listed as easily
In most stock exchanges, poor performance leads to being delisted, but in the Chinese stock exchange, only 2.7% of companies were delisted every year between 2000 and 2018 (compared to 33% of the US and 13% in Brazil). So while it is more of a bottleneck to be listed on Chinese exchanges, there is also less de-listing of poor performers. Additionally, due to the arduous selection process, many companies make strategic decisions that harm long-term profitability to meet the short-term criteria.
Changes to make the Chinese stock market more favorable for investors
Perhaps the most significant force reshaping China’s stock market is the ‘New Nine Measures’ (新’国九条’), a sweeping reform package issued by the State Council in April 2024. The policy directly targets the criticism that Chinese stocks have failed to reward investors, mandating that companies with a history of low or no dividends face restrictions on major shareholder share reductions and potential risk warnings. By 2025, the results were tangible: 3,755 Shanghai and Shenzhen-listed companies paid approximately 2.4 trillion yuan in cash dividends in 2024, a record high.
This policy change signals a fundamental reorientation of China’s capital markets from a system designed primarily to finance companies to one increasingly expected to deliver tangible returns to shareholders
The future of China’s stock market
Overall, the Chinese Stock Market is still very young, and while the foreign stock exchanges are taking some of the most fruitful Chinese company stocks, there are forces at play to change this.
Firstly, due to geopolitical tensions, the US is pushing to delist Chinese companies in sensitive industries. According to the Wall Street Journal, between 2019 and 2025, 80 Chinese companies have de-listed from US Stock Exchanges. Simultaneously, the Chinese government is also making it difficult for Chinese companies with sensitive data to be listed abroad. This could potentially re-direct some strong-performing Chinese companies to list on Chinese exchanges instead of foreign exchanges. However, what is more likely is for these Chinese companies to list on the Hong Kong Stock Exchange, where they have more access to global capital. This shift toward Hong Kong may benefit Chinese firms seeking global capital, but it does little to address the structural bottlenecks that keep domestic exchanges from fully capturing China’s economic growth.
This article was originally written in 2023, and updated in 2026 by the author, Allison Malmsten, Daxue Consutling’s public research director.
