Small Investors Are a Big Problem in China
China’s 200-million-strong army of individual investors has turned away from the stock market. The country’s benchmark CSI 300 index lost around a fifth of its value last year, and has risen much less than major indexes in the U.S., Japan and elsewhere in 2023. That is creating a sense of despair among the office workers, civil servants and other ordinary citizens who are responsible for the bulk of trading in China’s stock market.
“If we’re all going to lose money, we might as well cut our losses," said Huang Jianbin, a 57-year-old teacher in Shenzhen, who owns nearly $70,000 worth of shares. China’s small investors have a huge influence on stock prices. Unlike in the U.S., where large institutions dominate trading, China’s stock market is still driven by its 219 million individual investors.
They accounted for around 60% of trading volumes in the country last year, according to official estimates, compared with the less than one-fifth of volumes represented by small investors in the U.S. Now they are increasingly putting their cash into money-market funds, insurance products and bank savings accounts, despite recent reductions in interest rates that mean they earn less on their investments. Their nervousness is a sign of how far China has to go before it can recover from two years of strict measures to fight Covid-19, a clampdown which badly hurt the economy.
The CSI 300 index rose more than 7% in January, when many analysts and economists were optimistic the economy would bounce back quickly after China’s government brought an end to the country’s strict zero-Covid policies late last year. But a raft of data since then has undermined that early confidence. China’s economy grew just 0.8% in the second quarter from the
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