The Chinese stock market has often been compared to a casino. Economist Wu Jinglian has pointed out that, unlike in a casino where players are required to adhere to rules like being barred from viewing each other's cards, some individuals in the Chinese market have the ability to do the opposite. The market is a complex system plagued by persistent issues. Since its establishment in the early 1990s, it has gradually expanded, yet significant structural problems continue to undermine it. The quality of listed companies varies greatly, and the market operates in a poorly regulated environment, making it difficult for many investors to achieve fair profits, and information asymmetry frequently puts them at a disadvantage. This enduring situation has not only disappointed investors but also sparked widespread societal discontent with the country’s stock market.

In the development of China's capital market, the stock market has not fulfilled its role as an economic hub. After decades of growth, it remains stagnant and is underperforming. Despite China having a vast real economy, the most complete industrial system in the world, and being the second-largest economy globally with significant international influence, the stock market's development does not reflect the country’s overall strength. Clearly, such a market cannot satisfy successive Chinese leadership nor meet the expectations of the populace. Instead, only speculators who gain unethically, actual controllers of listed companies focused on raising funds, and market manipulators find contentment in this environment. The stock market resembles a polluted space, where legitimate investors, i.e. those who lack privilege and earn their profits through hard work, struggle to face the challenges it presents.

In this context, the chairman of the China Securities Regulatory Commission (CSRC) faces an almost inevitable high level of risk regarding market performance and public satisfaction. A review of the experiences of past chairmen reveals that many individuals who achieved remarkable success in other fields ultimately saw their careers end in this position, sometimes even damaging their professional reputations. This is often not due to personal capability but is largely driven by systemic factors. Currently, the Chinese stock market has long struggled with insufficient development, persistent structural problems, and low levels of market trust. If compounded by unexpected external shocks, such as economic fluctuations or major events, the CSRC chairman may quickly find themselves caught in a "performance trap" where even the most capable individuals struggle to turn the situation around. As a result, the role of the CSRC chairman often carries high expectations for market reform, but in the face of prolonged stagnation, they frequently become spokespersons for systemic issues and bear the brunt of the challenges.

The functioning of the stock market involves numerous factors, including listed companies, investors, regulators, intermediaries, market systems, regulatory policies, investment culture, financial policies, and the social credit environment. To truly improve the Chinese stock market, comprehensive systemic reforms must be undertaken within this complex context, rather than relying on isolated policy adjustments or regulatory actions.

In the face of such complex systemic issues, systematic solutions must be adopted. ANBOUND’s founder Kung Chan pointed out that the stock market has a significant impact on the Chinese national economy, necessitating both regulation and development, which cannot be at odds with each other. As a financial hub, if the stock market remains stagnant for an extended period, it will have widespread effects on the financial sector and related services. Technological innovation will struggle to secure financing through public listings, the investment market will lack viable targets, and sectors such as law and accounting will also be hindered. The stock market plays a crucial role in the functioning of a market economy. While there are indeed issues related to stock price fluctuations and speculation, as well as instances of fraud, these problems should be addressed through development, and not leaving them in stagnation. Otherwise, if the problems are resolved but the stock market itself loses its vitality, it would be a case of putting the cart before the horse. The key issue is recognizing the stock market's pivotal role in the market economy. Restoring the normal operating rhythm of the Chinese stock market as soon as possible is an urgent priority for the relevant authorities.

The administrators of the Chinese stock market will need to acknowledge their historical responsibility to ensure that the market maintains a consistent upward trend despite fluctuations in the current and near future. The economic landscape in China today is markedly different from that of developed countries with robust legal frameworks. Hence, it is unrealistic to expect the Chinese capital market to quickly attain the levels of its developed counterparts. Meaningful progress requires long-term, systematic reform. Consequently, the management of China's capital market needs to adopt this understanding as a foundational principle in governance and policy actions. As it stands, the authorities should clearly define the strategic positioning of the Chinese securities market, both now and in the future, before implementing any measures. This clarity will help ensure that policy decisions are on the right track. In this context, it appears that the Chinese securities market will continue to follow a pragmatic approach in the near term, where the mantra of "development is the hard truth" remains relevant.

The overall strategy for the securities market is focused on development, with the goal of ensuring that stock indices rise over time, reflecting the achievements of that growth. Regulatory policies are crafted to foster this development, and the enforcement of market discipline is similarly aimed at advancing the stock market. From China's standpoint, the stock market and capital market are integral components of the broader economic landscape. Like other sectors, they must be effectively managed and stable. This means that they cannot be allowed to stagnate or become a burden on the nation’s economic progress. Kung Chan emphasizes that the primary historical responsibility of China's capital market is to support this development. All governance strategies and approaches should align with this responsibility; neglecting it or misinterpreting such a strategic role within the national economy could turn positive initiatives into unintended setbacks.

Final analysis conclusion:

Currently, the Chinese stock market is still experiencing the growing pains of systemic reform, and this period of discomfort is expected to last for some time. The market will continuously face multiple tasks, including restructuring, reform, transformation, and construction, making it a long-term process that requires patience. From a policy perspective, regulatory authorities need to reappraise the stock market's role as a hub of the market economy. Both restructuring and development should proceed in parallel, ensuring that investors can achieve sustained returns even as they endure these challenges, thereby laying a solid foundation for the market's development.

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Yang Xite is a Research Fellow at ANBOUND, an independent think tank.