Mainland China Stock Market Trading Volume Recovers to 1 Trillion Yuan... Boosting Stimulus Expectations

Renewal Atmosphere with Change of Securities Authority Chief
Focus on Message over Policy

The daily trading volume of mainland China's stock market surpassed 1 trillion yuan for the first time this year. As expectations for stimulus from policy tailwinds grew amid the prolonged struggles of the Chinese stock market, capital flows showed signs of recovery. In particular, the Chinese government sent a message of reform by abruptly replacing the head of the securities authority just one day before the long holiday break for the Lunar New Year.

According to local media including China's Pengpai News on the 7th, the trading volume of the Shanghai and Shenzhen stock exchanges reached 1.02 trillion yuan (approximately 187.8 trillion KRW) that day. This was the first time this year that the daily trading volume exceeded 1 trillion yuan. The net inflow of overseas funds invested in China's A-shares through Hong Kong, known as "northbound funds," was 1.684 billion yuan, marking the seventh consecutive day of net inflows.

[Image source=Reuters Yonhap News]

On that day, the Shanghai Composite Index closed at 2829.7, up 1.44% from the previous day, and the Shenzhen Component Index rose 2.93% to 8708.24. The CSI300 Index, a representative benchmark index of China, increased by 0.96% to 3343.63, while the small-cap focused CSI1000 Index rose 4.47% to 4797.85. Pan Tianjian, an investment consultant at Minsheng Securities, explained, "The reversal in investor sentiment is due to recent changes in reports," adding, "If the good news materializes, the market will gradually begin to rebound."

In fact, what is driving the Chinese stock market is not a clear policy change but rather positive news reports that raise expectations. On that day, the Chinese Communist Party and government sought to reverse the mood by replacing the head of the country's securities authority. According to the state-run Xinhua News Agency, the Central Committee of the Chinese Communist Party and the State Council appointed Wu Qing, former Deputy Party Secretary of Shanghai, as the new chairman and party secretary of the China Securities Regulatory Commission (CSRC). Yi Man, who had served for five consecutive years, stepped down from the position.

Although the Central Committee and the State Council have remained tight-lipped about the specific reasons for the personnel change, analysts suggest it may be a message of reform while holding someone accountable for the long-standing sluggish stock market. The CSRC is a ministerial-level agency directly under the State Council, with authority to supervise, manage, and regulate China's stock market and capital markets. It has recently taken the lead in market support measures, including cracking down on illegal short selling and imposing additional restrictions on stock lending.

In particular, the new chairman Wu Chang is known for achieving results through strong enforcement. Bloomberg reported that in the 2000s, while at the Shanghai Stock Exchange, he conducted rigorous investigations that led to the closure of 31 companies for regulatory violations, earning him the nickname "Broker Slayer." He later supervised the fund industry until 2010. Bloomberg explained, "President Xi Jinping prioritizes the prevention of major financial risks, and Wu's tough approach and zero tolerance for illegal activities will help achieve that goal."