The $23 Trillion Household Savings Shift: Is China’s Onshore Equity Market Entering a Sustained Bull Phase?

China’s onshore equity markets are experiencing a seismic shift as household savings—now exceeding 160 trillion yuan ($22 trillion)—flow into stocks at an unprecedented pace [1]. This liquidity-driven surge, fueled by retail participation and policy tailwinds, has ignited a rally in indices like the CSI 300 and Hang Seng, raising a critical question: Is this the start of a sustained bull phase?

The Drivers of the Shift: Low Rates, Policy, and FOMO

The catalysts are clear. With deposit rates in China dropping below 1% in May 2025, cash savings have become a losing proposition [1]. Retail investors, who account for 90% of onshore trading volume, are now chasing higher returns, driven by fear of missing out (FOMO) as the CSI 300 rebounded 22% from its April 2025 low [1][5]. Policy reforms have amplified this shift. Insurance fund mandates, expanded ETF offerings, and a 132% year-on-year surge in new mutual fund issuances are channeling capital into equities [1][3]. Meanwhile, margin financing has swelled to 2.03 trillion yuan by August 2025, reflecting heightened leverage and confidence [1].

The government’s anti-involution campaign—aimed at curbing destructive price competition—has further stabilized corporate profits, particularly in sectors like steel and solar power, boosting investor sentiment [1]. Even high-net-worth individuals are piling in, with hedge fund investments spiking in July 2025 [4].

Macroeconomic Divergence: China’s Resilience vs. Global Stagnation

China’s macroeconomic divergence from the U.S. and EU is a key undercurrent. While the U.S. Federal Reserve paused its easing cycle due to inflation concerns, the European Central Bank began cutting rates, and China’s PBOC slashed the reserve requirement ratio (RRR) by 0.5 percentage points, injecting 1 trillion yuan in liquidity [2][4]. This divergence has created a unique environment where China’s 5.3% GDP growth in H1 2025—driven by high-tech manufacturing and a record trade surplus—contrasts with the U.S.’s 3% growth and the EU’s sluggish performance [5].

The 90-day U.S.-China tariff truce and its extensions have further reduced economic uncertainty, encouraging households and institutions to rotate out of safe-haven assets like government bonds into equities [1]. This shift is evident in the 6 basis point rise in 10-year China bond yields following the truce announcement [1].

Risks and the Road Ahead

While the rally is driven by behavioral and policy factors, sustainability hinges on fundamentals. Corporate earnings and macroeconomic stability will be critical, particularly as sectors like AI, semiconductors, and green energy align with government priorities [1][3]. However, risks loom: excessive leverage, potential trade tension escalations, and resurfacing economic weakness could trigger volatility [1].

Conclusion: A Bull Market with Caveats

China’s onshore equity market is undeniably in a bull phase, supported by a perfect storm of low rates, policy reforms, and retail FOMO. Yet, investors must balance optimism with caution. The structural shift toward innovation-driven sectors offers long-term potential, but short-term volatility remains a risk. For now, the $23 trillion savings shift is a force to be reckoned with—one that could redefine global capital flows for years to come.

Source:
[1] China retail investors are using savings to fuel stock market [https://www.cnbc.com/2025/08/25/china-stock-market-boom-record-savings.html]
[2] Global Economic Outlook: July 2025 [https://www.spglobal.com/market-intelligence/en/news-insights/research/global-economic-outlook-july-2025]
[3] The Untapped Potential of Chinese Household Savings as [https://www.ainvest.com/news/untapped-potential-chinese-household-savings-catalyst-sustained-stock-market-growth-2508/]
[4] China's Wealthy Investors Pile Into Liquidity-Driven Stock [https://www.bloomberg.com/news/articles/2025-08-26/china-s-wealthy-investors-pile-into-liquidity-driven-stock-rally]
[5] China's Economy in H1 2025: Resilience Amidst Uncertainty [https://behorizon.org/chinas-economy-in-h1-2025-resilience-amidst-uncertainty/]