Lessons from China’s Bull Markets: Decoding the Next Opportunity Through Historical Data

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Bull markets in Chinese stocks are not random events. They are usually driven by the twin engines of policy guidance and abundant liquidity. When the market is steeped in pessimism, contrarian thinking becomes especially valuable—just as investing legend John Templeton said: “Bull markets are born on pessimism.”

Authorities aim to restore market confidence by cutting borrowing costs and providing additional liquidity. These policy signals have driven professional institutions to significantly increase their equity holdings, reflecting positive expectations for a liquidity-driven rally.

This article will look back at several pivotal bull markets, extract a practical “Bull Market Ignition Signal Identification Framework,” and help investors learn how to spot emerging opportunities.

Key Takeaways

• China’s bull markets are jointly driven by three major factors—policy, capital, and industry—only when they resonate harmoniously does a bull market emerge.
• Policy sets the direction, capital provides the fuel, and industry carries the growth narrative.
• Bull markets have four distinct phases: born in pessimism, growing amid skepticism, maturing in optimism, and ending in euphoria.
• Investors should build their own “bull market dashboard” and continuously monitor policy, liquidity, industry trends, and valuation metrics.
• Understanding the cyclical nature of bull markets helps investors stay rational, avoid emotional decisions, and prepare for the next opportunity.

The Driving Forces of China’s Stock Market: The Trio of Policy, Capital, and Industry

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To understand China’s bull markets, one must look beyond price charts and examine the three core engines behind them: top-level policy design, abundant liquidity, and the era-defining industry narratives. When these three play in harmony, they compose a magnificent bull market symphony.

Policy Trumpet: From Institutional Dividends to National Strategy

Policy is the starting point and core for understanding how China’s stock market operates. From early direct interventions to rescue the market to later institutional reforms aimed at long-term healthy development, policy has sounded different notes in different eras.

• Early Rescue and Institutional Exploration: In 1994, facing market difficulties, regulators launched the “three major policies to save the market,” directly boosting confidence. The famous “5·19 rally” in 1999 was ignited by policy support for state-owned enterprise reform and encouragement of technology development, sparking enthusiasm for tech stocks. Early policies focused mainly on solving short-term problems and releasing institutional dividends.
• Mid-Period Reform and Structural Optimization: Entering the 21st century, policy shifted toward resolving deep structural issues. The Share-Trading Reform (Split-Share Structure Reform) launched in 2005 was a landmark event that addressed the unequal rights between non-tradable and tradable shares, exerting a profound long-term impact.

  Impact of the Reform

  Research shows that the implementation of the split-share reform closely overlapped with improvements in price information transparency. By aligning shareholder interests, the reform likely broadened the investor base and laid a more solid micro-structure foundation for subsequent bull markets.

• New Era National Strategy: In recent years, policy has become more strategic and forward-looking. From the supply-side structural reform after 2015 to the full implementation of the registration-based IPO system, the goal is to enhance the capital market’s efficiency in serving the real economy and channel resources into key industries aligned with national strategy.

Capital Flood: From Domestic Savings to Global Inflows

If policy is the wind, then capital is the water. Bull markets cannot form without abundant liquidity support. Capital comes from both domestic macro loosening and inbound global flows.

Key indicators for monitoring liquidity include:

1. Macro Liquidity: The central bank’s monetary policy is the master faucet. During reserve requirement and interest rate cut cycles, funding costs fall, and growth in M2 (broad money supply) and total social financing accelerates, providing ample ammunition for the stock market.
2. Global Capital Flows: As China’s financial markets open, global capital sentiment becomes increasingly important. Mechanisms such as QFII (Qualified Foreign Institutional Investor) and Stock Connect programs serve as major channels for foreign capital. Investors can gauge foreign sentiment by tracking northbound net inflows.

Evolution of Capital Tools

In the past, international investors mainly relied on traditional quota-based channels like QFII. Today, thanks to fintech development, cross-border capital flows have become far more convenient. For example, modern financial service platforms such as Biyapay leverage digital technology to help users manage assets across markets more efficiently through accounts opened at licensed Hong Kong banks, offering greater flexibility for global asset allocation. This reflects progress in financial infrastructure and provides more diverse options for global capital to participate in China’s market.

Industry Wind: From Internet Tech to Domestic Substitution

Policy and capital ultimately need a landing point—that point is the industry aligned with the trend of the times. Nearly every bull market has had a clear industry theme that carries the market’s most optimistic expectations and attracts the smartest money.

• 1999-2001: Dawn of the Internet At the turn of the century, the global internet wave swept China. Internet concept stocks soared even though most were not yet profitable.
• 2015: “Internet+” Feast With the spread of mobile internet, “Internet+” was elevated to national strategy. The capital market responded enthusiastically—any traditional industry linked to the internet became a market darling, creating a structural bull market.
• Post-2020: Rise of Hard-Core Technology In recent years, amid global supply-chain restructuring and national strategic push, focus has shifted to “hard-tech” sectors like new energy and semiconductors. The government has strongly supported these key industries through multiple policy tools.

  How Does Policy Support Key Industries?

  • Direct Subsidies & Market Access: The government stimulated end demand by subsidizing electric vehicle companies and created favorable conditions for domestic players through standards (e.g., the early battery “whitelist”).
  • Industry Funds: For semiconductors, China established the National Integrated Circuit Industry Investment Fund (“Big Fund”). Since 2019, Big Fund Phase II (~$29 billion) and Phase III (~$47.5 billion expected) have been launched, targeting equipment, materials, and advanced manufacturing.
  • Credit Support: From 2018 to 2023, semiconductor manufacturers received significantly increased bank loan quotas, reflecting the financial system’s tilt toward strategic industries.

In summary, policy sets the direction, capital provides the power, and industry delivers the expectations. Only when these three forces converge can a sustainable bull market gain a solid foundation.

The Bull Market Life Cycle: Four Stages from Birth to Mania

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Like all cyclical phenomena, bull markets follow a life trajectory. Understanding the characteristics and emotional shifts of these four stages helps investors stay clear-headed amid market tides.

Stage 1: Born in Pessimism

The starting point of a bull market is often the moment of greatest despair. Negative news dominates, investor confidence collapses, and trading volume shrinks dramatically. Major historical bottoms like 998 points in 2005 and 1,849 points in 2013 were born in such gloom.

Strategic Insight: At this stage, contrarian thinkers begin “probing deployments.” They do not chase the absolute bottom but buy quality assets in batches that have been wrongly sold off, patiently awaiting the turnaround.

Stage 2: Growing Amid Skepticism

The market begins to rebound from the bottom, yet most remain doubtful. This is the classic “climbing the wall of worry” phase. Negative factors—weak economic data or external uncertainty—still dominate discussion, but the index rises slowly despite the skepticism. Historical data show that in the middle of bull markets, sector rotation often occurs; value assets (sometimes called “Old Deng assets”) can catch up after growth stocks have run for a while, as seen in the second half of 2014.

Strategic Insight: Once the trend reversal is confirmed, investors should switch to “aggressive following,” boldly adding positions to capture the main profits from the trend.

Stage 3: Maturing in Optimism

As the index keeps hitting new highs, sentiment shifts from doubt to widespread optimism. Mainstream media heavily cover the wealth effect, and new investment stories and industry narratives take root. Almost all sectors rise, and making money feels easy.

Strategic Insight: Investors should start evaluating valuation levels of holdings and gradually lock in profits without rushing to fully exit.

Stage 4: Dying in Euphoria

The market enters its final manic phase. New account openings and margin balances hit record highs, signaling a flood of novice investors. Before the 2007 peak at 6,124 and the 2015 peak at 5,178, China’s stock market experienced nationwide frenzy. Any negative news is ignored, and valuation ceases to matter.

Strategic Insight: When the market enters irrational euphoria, danger is highest. Investors must strictly execute “disciplined exits,” sell holdings, preserve cash, and wait for the next cycle.

Future Outlook: Build Your Own Bull Market Dashboard

History provides the map, but we must still navigate the road ahead ourselves. Instead of guessing the next move, build your own monitoring system—a dashboard that won’t tell you the destination but clearly shows current speed, direction, and risks, helping you make rational decisions in complex market conditions.

Integrate Key Metrics: Create Your Personal Watchlist

An effective dashboard should combine the four dimensions mentioned earlier—policy, capital, industry, and valuation—into an actionable checklist that you review regularly to stay objective about market pulses.

1. Policy Wind Vane: Track top-level signals.
   • Key Institutions: Regularly follow official statements and meeting minutes from the People’s Bank of China (PBoC), China Securities Regulatory Commission (CSRC), etc.
   • Policy Moves: In September 2024, PBoC Governor Pan Gongsheng, together with multiple financial regulators, announced a series of monetary measures to support economic growth, including rate cuts, targeted real estate support, and two new tools to stabilize financial markets. Future monitoring of how these affect existing structural tools (e.g., preferential loans for green and tech firms) will be crucial.
2. Liquidity Thermometer: Measure market liquidity abundance.
   • Macro Liquidity: Watch M2 and total social financing data. As of October 2025, China’s M2 balance grew 8.2% year-on-year to ~$47.2 trillion; total social financing reached ~$61.5 trillion, reflecting overall credit conditions.
   • Global Capital Flows: Foreign capital behavior is a key reference. Morgan Stanley reported that in September 2024, net foreign inflows into Chinese stocks rebounded to $4.6 billion, mainly driven by $5.2 billion from passive funds—showing global allocation money returning.

     With fintech progress, individual investors can manage global assets more conveniently. For example, modern platforms like Biyapay use digital technology to let users flexibly allocate and manage assets across markets via accounts at licensed Hong Kong banks, offering a micro-perspective on global capital flows.

3. Industry Spotlight: Identify mainstream themes aligned with the times.
   • Policy Support Direction: Current policy and capital are clearly tilting toward traditional strengths like shipbuilding and strategic emerging sectors such as electric vehicles, semiconductors, green technology, and high-end manufacturing.
   • New Concepts: Pay attention to emerging ideas like “new quality productive forces,” which often represent future economic drivers.
4. Valuation Safety Valve: Assess whether prices are reasonable.
   • Core Index Valuations: Compare major index valuation levels with historical ranges to judge if the market is expensive, fair, or cheap.

Current Reading: Where Are We Now?

Important Note: The following analysis is merely a case exercise using the framework above to demonstrate a thinking method and does not constitute any market forecast or investment advice. Independent thinking and judgment remain every investor’s essential skill.

Using current data, let’s run a dashboard reading:

• Policy Gauge: Clearly pointing to “easing and support.” From rate cuts to targeted tools, policy is actively providing support.
• Liquidity Gauge: Sending mixed signals. On one hand, some domestic data like fixed asset investment and retail sales appear weak, with slowing credit impulse. On the other, M2 growth remains stable, and passive foreign funds are flowing in significantly—indicating structural rather than broad-based liquidity.
• Industry Gauge: Spotlight effect is strong. Capital is concentrating in strategic “hard-tech” areas like semiconductors and capital goods, while traditional sectors like insurance and some consumer goods face outflows—pointing to a structurally differentiated rather than across-the-board bull market.
• Valuation Gauge: CSI 300 valuation sits in the lower-middle historical range—not extremely cheap like 2014, but far from bubble highs, providing a reasonable safety margin for long-term positioning.

Overall, current market characteristics most resemble which stage of the bull market life cycle? It appears to have moved past “born in pessimism” but is far from “maturing in optimism.” Sentiment, capital flows, and industry performance all show clear structural differentiation—aligning closely with the “growing amid skepticism” phase. In this stage, the market often advances hesitantly, with opportunities concentrated in macro-strategically aligned sectors rather than broad rapid gains. This is the moment that tests investors’ ability to identify core trends and maintain patience. By continuously monitoring dashboard indicators, investors can better sense the long-term pulse of China’s stock market and prepare for the next big opportunity.

Understanding market cycles hinges on grasping the three main threads—policy, capital, and industry. Although history does not simply repeat, the underlying logic and human nature driving markets are remarkably similar. Research shows that many investors exhibit “herd behavior”, especially during sharp volatility, easily swayed by crowd emotions and deviating from rational judgment.

Therefore, investors should not try to predict exact tops or bottoms. The more important action is to build your own decision-making system, draw wisdom from history, maintain patience and discipline, and greet the next market cycle’s gift with rationality.

FAQ

How does policy affect the stock market?

Policy sets the direction for economic development. Through industry planning and monetary tools, it guides capital toward specific areas, directly influencing investor expectations and thus market valuation and trend.

Why is capital flow crucial for bull markets?

Abundant liquidity is the direct fuel pushing asset prices higher. When liquidity increases, borrowing costs for companies and individuals fall, freeing more money for investment—this provides the necessary propellant for rising prices.

How does understanding the four bull market stages help?

It offers an analytical framework. Investors can use it to assess current market sentiment and risk levels, helping maintain objectivity and discipline and avoid emotion-driven decisions during extreme euphoria or despair.

Which macro indicators should investors monitor?

Creating a personal watchlist is an effective approach. It can include:

• Policy Direction: Track official statements from key institutions.
• Liquidity Conditions: Monitor M2 growth and total social financing.
• Industry Trends: Identify priority sectors aligned with national strategy.