Despite China’s supposed “socialist” market economy, based on superficial theories that capitalism can be subservient to the interests of the working class through the wise art of government by a communist party in name only, the country has a thriving speculative financial market that has grown since the 1990s as part of the need for capital accumulation under the false pretense of economic growth and independence from the yoke of Western imperialism, but which has nevertheless definitively hinged the large Chinese economy on the turbulent events of the global market.

The reality of so-called state socialism, which has repeatedly attempted to repress the growth of the stock market, has ultimately been the creation of a model incredibly faithful to those found in other capitalist states. So much for the idea of socialism with Chinese characteristics, when there is no fundamental difference in its national capitalism.

The idea of liberating workers from imperialist domination through the construction of a national economy is just a smokescreen for the freedom of capital from its rusty chains of private property and equity in the verdant terrain of public responsibility and international speculation.

This speculative market was favored by the so-called harmonization of free market interests and state planning, ostensibly in the interests of “socialism” and the emancipation of workers, but despite self-interested talk of unifying all capitalist interests for the social good, the rather obvious result has been that the lords of speculative capital have demanded ever greater monetary and material enrichment from the state treasury, which has now tied its fate to the financial well-being of this parasitic bourgeois class.

History of the stock market in China

In Chinese history, there have been three different phases of stock market establishment by various ruling classes. The first was established following China’s opening up after the Opium Wars in the mid-1800s by foreign merchants to speculate on commodities, maritime shipping, and shares of British and other colonial companies.

Finally, in 1891, the first national stock exchange, the Shanghai Sharebrokers’ Association, was founded, later renamed the Shanghai Stock Exchange.

At the beginning of the Republican era (1911-1949), in the wake of significant financial instability, particularly at the beginning of speculative bubbles related to the rubber market, the Kuomintang (KMT) made strong attempts to control the burgeoning but fragmented and chaotic market left to it by the “warlord era,” which presented the additional problem of the issuance of many regional currencies for local war campaigns.

The KMT established the Chinese Central Bank in 1928 in an attempt to create a stable national currency, while also exercising tighter control over foreign investment and periodically closing the stock exchanges.

However, this attempt to generate stability was short-lived due to civil wars that led to excessive spending and money printing, forcing the government to resort to severe measures such as attempting to create a new national currency and closing the Tianjin and Shanghai stock exchanges in 1948.

After the Chinese Communist Party (CCP) took control of the state, the Shanghai Stock Exchange was closed permanently and securities trading was suppressed for decades.

Ultimately, the existence of an official stock market within China’s growing capitalist power was inevitable and had to reemerge due to the need to increase investment in state-owned enterprises (SOEs) that national budgets could not meet through taxation or bond issuance.

This led to the re-establishment of the Shanghai and Shenzhen stock exchanges under the pretext of “disciplining” SOEs by presenting them to the market in a decisive and hammering manner to attract domestic savings towards productive investments.

Recent developments and the Brian Hwang incident

In stark contrast to the image of the stock market in China as a tightly regulated, subjugated lightning rod useful for public spending in pursuit of social good, or at least for strengthening the central government’s tight control, the actual result has been the concrete emulation of the speculative monstrosities that exist in virtually every capitalist nation, large or small.

The most recent estimate of the size of the Chinese stock market relative to national GDP is 63.4%, higher than the average for Germany and Europe, which is around 40%, but still lower than that of the United Kingdom, the United States, France, and Japan.

Also in 2024, there were record share buybacks by 2,153 companies amounting to 165 billion yuan, or about $22 billion, financed by a cash injection from state-owned banks amounting to 300 billion yuan.

A distinctive feature of the Chinese stock market compared to its Western counterparts is the high percentage of retail trading, known in financial jargon as “online trading,” i.e., the buying and selling of financial instruments (stocks, currencies, futures contracts, cryptocurrencies) on digital platforms provided by brokers, as opposed to speculation on institutional channels.

Retail trading accounts for about 70-80% of stock market volume, compared to about 25% in the United States and 15% in Europe.

The financial nature of Chinese capitalism is clearly demonstrated, but we still want to give an extreme example of the speculative and volatile nature of the stock market in China. We have already discussed speculative bubbles related to the construction sector in other articles.

We are talking about the gigantic speculative bubble in the ‘Education Technology (Edutech)’ sector, i.e., digital ‘learning’ platforms dedicated to schools, universities, and even corporate training, in particular the story of the investment company Archegos Capital Management created by Chinese Brian Hwang.

This company was able to invest huge amounts of capital in a seriesof Chinese technology stocks using a particular financial mechanism, the “total return swap,” i.e., cash in exchange for the total return on the contract and its coupons.

It was a highly speculative operation, which allowed Hwang’s company to borrow large sums from several Western banks without them being aware of the enormous financing granted.

When difficulties in the technology stock sector threw this totally debt-ridden structure into crisis, the banks performing the arbitrage function were forced to liquidate Archegos’ position, $14 billion in assets, once they realized how deep its debt was, with no possibility of honoring the open contracts, i.e., complying with the terms of the loan in “exchange” mode.

This caused a snowball effect, leading to a wider collapse and further problems in the Chinese stock market in general.

The fully capitalist nature of China needs no further description. Its capitalist model is identical to that of the West, based on the same system of exploitation and the same financial methods, and even the worn-out fiction of “state capitalism” falls apart in the face of the reality of the system. The Chinese state operates in exactly the same way as all the capitalist states of the world, with its economic and financial control bodies, central bank, and other apparatuses, and its fully capitalist nature leads China to compete in the imperialist arena with other states, without marking any difference from them in any field, especially in the class field.

The world revolution will also have to deal with this state monster.