From the Frenzy at 6124 Points to the Darkness Before Dawn: Memory Fragments of China's Shanghai A-Shares

Image Source: pexels

In 2007, the Chinese stock market entered a frenzy. The Shanghai A-share index surged to 6124 points, creating a historical high. Many people quit their jobs to focus full-time on the stock market. They firmly believed they could achieve financial freedom.

The market was filled with optimistic sentiment, with people shouting “Hold until death, never sell.”

However, the frenzy soon ended. China Petroleum opened on its listing day at nearly three times the issue price. But the stock price quickly plummeted afterward, shattering the dreams of countless investors. This event revealed the cruelty of market cycles. The memory fragments of history record the fates of ordinary people in the torrent of the times.

Key Points

• The Shanghai A-share market has experienced multiple sharp rises and falls, from the early myths of the “Old Eight Shares” to the 2007 peak at 6124 points, and then to the 2015 bubble at 5178 points, each accompanied by investor frenzy and disillusionment.
• Policies and institutional reforms have profoundly influenced the A-share market; the split-share structure reform once ignited a bull market, while the unlocking of “large and small non-circulating shares” and deleveraging policies led to market crashes.
• Market investment logic has gradually shifted from short-term speculation to value investing, with funds favoring high-quality “Beautiful 50” companies rather than blindly chasing concepts.
• China’s A-share market is gradually integrating with international standards; foreign capital inflows and the establishment of the STAR Market have promoted market maturity, providing development opportunities for innovative enterprises.
• Investors should respect market cycles and abandon the idea of getting rich overnight to steadily navigate the fluctuations of the A-share market.

Genesis: The Birth and Exploration of Shanghai A-Shares

The story of 6124 points did not emerge out of thin air; its seeds were planted decades earlier. To understand the cycles of Shanghai A-shares, we must turn the clock back to that era full of exploration and chaos.

From the Jing’an Securities Department to the Bell on the Huangpu River

The history of the modern securities market can be traced back to the late 19th century. Foreign merchants established the “Shanghai Stock Brokers Association” in 1891, which was the prototype of the first stock trading organization in mainland China.

However, the exchange we know today had a more legendary birth process. Its starting point was not a grand hall but a rudimentary securities department.

In 1986, the Jing’an Securities Department of the Industrial and Commercial Bank of China’s Shanghai Trust and Investment Company was established. This place that later ignited countless wealth dreams was initially converted from a barber shop.

It was not until November 26, 1990 that the Shanghai Stock Exchange was officially established, and on December 19 of the same year, it rang the opening bell. From the small securities department to the bell on the Huangpu River marked the beginning of a new era.

The “Old Eight Shares” and the Initial Wealth Myths

In the early days of the exchange, there were very few stocks available for trading, only eight, which the market called the “Old Eight Shares.”

• Yanzhong Industry
• Vacuum Electronics
• Feile Audio

These stocks had extremely small issuance volumes, making it extremely difficult for ordinary people to buy even one lot. Scarcity drove value, and the huge supply-demand imbalance created the initial wealth myths. Stock prices skyrocketed in a short time, and those holding original shares quickly became objects of envy, planting the seeds of speculation and overnight riches in people’s minds.

The Frenzy and Curtain Call of the Banker Stock Era

As the market developed, a special period known as the “banker stock era” arrived. From the mid-1990s to around 2001, the market was not driven by value but controlled by a few powerful funds known as “bankers.” They manipulated prices at will through high control of shares and spreading rumors, reaping huge profits. Ordinary investors, in the face of information asymmetry, often became the harvested. The frenzy of this era eventually ended with regulatory intervention, leaving profound lessons for subsequent market institution building.

Peak of the Frenzy: The Birth and Disillusionment at 6124 Points

Image Source: pexels

The end of the banker stock era brought a period of silence to the market. However, a profound institutional reform was quietly brewing enormous energy capable of shaking the entire market. It ultimately pushed Shanghai A-shares to an unprecedented historical peak and planted the seeds of disillusionment.

Share Reform Launch: Igniting a Historic Bull Market

The time came to 2005, when the market had languished at low levels for a long time, and investor confidence was lost. The root cause pointed directly to the split-share structure—where listed company shares were artificially divided into tradable A-shares and non-tradable legal person shares. This dual structure led to unequal rights and benefits for the same shares, severely restricting market development.

To solve this historical legacy issue, a major reform called the “split-share structure reform” was launched.

The China Securities Regulatory Commission officially launched this reform in April 2005. Its core goal was to gradually convert all non-tradable shares into tradable shares on the secondary market.

This reform was ingeniously designed to resolve multiple deep-seated contradictions at once. Its main objectives included:

• Linking non-tradable shareholders’ wealth directly to the company’s stock price, prompting them to care about market value.
• Reducing conflicts of interest between tradable and non-tradable shareholders.
• Strengthening corporate governance, giving major shareholders more incentive to supervise management and maximize company value.
• Clearing obstacles for capital operations and industrial mergers and acquisitions.

The launch of the split-share reform was like injecting living water into a dry riverbed. It fundamentally unified the interests of all shareholders, greatly boosting investor confidence in the future. Market expectations were unprecedentedly aligned, igniting a magnificent historic bull market. The index broke free from years of bottoming and surged upward irresistibly.

Nationwide Stock Trading: The Collective Memory of “Hold Until Death, Never Sell”

As the index climbed higher and higher, the wealth effect quickly spread throughout society. From 2006 to 2007, stock trading became the hottest topic. Whether taxi drivers, retired seniors, or college students, almost everyone was talking about stocks. Securities company trading halls were packed, and account openings hit record highs. People’s faces were filled with excitement and greed, as if gold was everywhere.

“How much did your stocks rise today?” became the greeting when people met. Fund issuances were extremely hot, with hundreds of billions in funds snapped up in hours. The market entered an irrational frenzy, with people believing the index would hit 10,000 points. In this collective mania, a slogan resounded: “Hold until death, never sell.” It represented countless investors’ fantasy of an endless bull market and became the deepest collective memory of that era. People abandoned risk awareness, pinning all hopes on the rising K-line charts.

Summit Collapse: The Fatal Blow from “Large and Small Non-Circulating Shares” Reduction

On October 16, 2007, the Shanghai Composite Index peaked at 6124.04 points, the highest point in history to date. The festive atmosphere reached its climax, but dangerous signals emerged. The split-share reform that ignited the bull market also planted the seeds for its end.

After the reform, previously non-tradable shares (called “non-circulating shares”) could be traded on the market after a lock-up period. These unlocked shares were colloquially known as “large and small non” based on the holder’s identity. When the 6124-point bell rang, it also meant massive “large and small non” shares were about to unlock.

These shareholders had extremely low holding costs; even a 90% price drop would still yield huge profits. The enormous reduction pressure was like a “dammed lake” hanging over the market. After China Petroleum listed at a sky-high price and quickly broke, panic spread. Then, the flood of “large and small non” reductions arrived as expected, merciless selling instantly overwhelming all buying. The index turned downward, beginning a long decline. Investors who once shouted “Hold until death, never sell” were eventually forced to cut losses in the continuous crash, turning the wealth myth into a tragic disillusionment.

On the Ruins: Four Trillion Stimulus and Long Bottom-Seeking

The avalanche at 6124 points was not only a collapse of market sentiment but also collided head-on with the global financial storm. Under dual internal and external pressures, Shanghai A-shares fell into the abyss. However, new forces always brew on the ruins; policy interventions and structural reforms together shaped the nearly eight-year long bottom-seeking road that followed.

Global Crisis and the “Policy Bottom” at 1664 Points

In 2008, the subprime crisis originating in the US evolved into a global financial tsunami. External demand sharply contracted, posing severe challenges to China’s economy, and the capital market was in turmoil. The Shanghai Composite Index plummeted, and investor confidence was nearly destroyed.

On October 28, 2008, the index fell to 1664 points, a level etched in the memory of countless shareholders. As the market neared despair, a series of policies aimed at stabilizing the economy and boosting confidence were intensively introduced, forming the famous “policy bottom.” These measures included:

• Relaxing some restrictions on purchasing second homes.
• Providing tax credits to stimulate consumption and investment.

These powerful signals conveyed the government’s determination to rescue the market, temporarily halting panic selling, and the index found breathing room at 1664 points.

The “Four Trillion” Stimulus Shot and Structural Differentiation

To counter the global economic recession, an unprecedented economic stimulus plan was launched. The government announced a total investment plan of 4 trillion RMB (about $586 billion), injecting this strong shot directly into the real economy.

Funds mainly flowed into public infrastructure construction, post-earthquake reconstruction, and social welfare. Among them, railway, highway, and other infrastructure projects received massive investments, with many state-owned enterprises becoming major beneficiaries. This stimulus drove strong rebounds in related industrial chain listed companies, bringing a “mini bull market” in 2009. However, this investment-driven rise did not form a comprehensive bull market. Fund preferences led to severe structural differentiation, with traditional cyclical industries performing strongly while most other stocks lingered at the bottom.

Rise of the ChiNext and the “Eight-Year War of Resistance” Bear Market

During the long adjustment period of the main board, a new board brought fresh vitality to the market. In October 2009, the Shenzhen Stock Exchange officially launched the ChiNext. Its establishment aimed to provide financing channels for high-tech, high-growth innovative enterprises and was hailed as “China’s Nasdaq.”

The birth of ChiNext marked the capital market’s tilt toward emerging industries. It attracted large amounts of funds seeking high returns and later walked out of a bull market independent of the main board. However, for the vast majority of main board investors, the bear market after the 6124 collapse did not end. From 2008 to 2015, the market experienced nearly eight years of oscillating bottom-seeking, a period jokingly called the “eight-year war of resistance” by shareholders. People endured repeated tugs-of-war and attrition, waiting for the dawn of the next cycle.

Leverage Phantom: The Madness at 5178 Points and the Circuit Breaker Shock

The eight-year silence wore down countless people’s patience but also accumulated energy for a new round of madness. This time, the driving force was no longer performance or share reform but a tempting and extremely dangerous phantom—leverage.

Reform Bull and Leverage Bull: Rapid Rise Driven by Funds

At the end of 2014, the term “reform bull” began circulating in the market, with people full of expectations for a new round of economic reforms. At the same time, a series of policies injected massive liquidity into the market.

• The People’s Bank of China repeatedly cut benchmark interest rates and reserve requirement ratios to address economic weakness.
• Regulators lifted the “one person, one account” restriction, allowing investors to open multiple stock accounts, greatly facilitating new entrants.

In the loose monetary environment and high market sentiment, a more powerful force emerged: leverage funds. On-exchange margin financing and securities lending scaled up dramatically. According to data, in June 2015, the A-share market’s margin balance reached a historical peak of about $366 billion (2.27 trillion RMB). Off-exchange allocation and other shadow leverage were several times larger. The market quickly evolved from a “reform bull” to a “mad bull” fueled by funds and leverage, with the index soaring in just half a year, peaking at 5178 points on June 12, 2015.

Thousand-Stock Limit-Down: Liquidity Crisis Triggered by Deleveraging

However, a rise completely driven by funds is fragile. When regulators began cleaning up off-exchange allocation and actively “deleveraging,” the crisis erupted instantly. High-leverage investor accounts were first forcibly liquidated, with selling triggering price drops. Price drops then hit more accounts’ liquidation lines, forming a vicious cycle. The market fell into a severe liquidity crisis, with buying disappearing and countless stocks hitting limit-down consecutively, creating the tragic scene of “thousand-stock limit-down.” The once-glorious private equity tycoon Xu Xiang was investigated after this stock disaster, marking the end of an era of hot money.

National Team Rescue and Reflections on the Circuit Breaker Farce

Facing systemic market risks, government-backed funds known as the “national team” quickly entered to rescue the market. They took multiple measures to stabilize it.

However, another policy innovation during the rescue turned into a farce. In early 2016, the A-share market officially introduced the circuit breaker mechanism.

• The rule set that a 5% drop in the CSI 300 would pause trading for 15 minutes, and 7% would close for the day.
• The mechanism was implemented for only 4 trading days, triggering the 7% threshold twice on January 4 and January 7, causing early closures.

Practice proved this mechanism exacerbated investor panic, creating a “magnet effect,” and it was urgently suspended on January 8. From the madness of the leverage bull to the national team rescue, and the hasty end of the circuit breaker, this cycle profoundly reflected the market’s irrationality and the pains of institutional building during rapid development.

Darkness Before Dawn: Value Return and New Landscape

Image Source: pexels

After the leverage bubble at 5178 points burst, the market did not immediately usher in rebirth but fell into a long and painful adjustment period. This period was seen by many investors as “the darkness before dawn.” However, it was precisely on this silent ruin that the concept of value investing began to return, and a new market landscape quietly formed.

Extreme Differentiation: “Beautiful 50” and “Deadly 3000”

After the 2015 stock disaster, the market bid farewell to the era of synchronized rises and falls, entering a phase of extreme differentiation. Funds no longer blindly chased concepts and themes but began seeking companies with true core competitiveness and stable profitability.

The market thus gave birth to two distinct labels: “Beautiful 50” and “Deadly 3000.”

The “Beautiful 50” referred to a group of blue-chip white horse stocks represented by Kweichow Moutai and Gree Electric. They had excellent performance and deep moats, with stock prices hitting new highs in oscillating markets. In stark contrast was the “Deadly 3000,” referring to small-cap stocks lacking fundamental support and with inflated valuations. These stocks continuously declined in the long bear market, causing heavy losses for holders. This structural market signaled that the investment logic of Shanghai A-shares was shifting from short-term speculation to long-term value.

Institutional Reforms: Foreign Capital Inflow and STAR Market Launch

While the internal market structure optimized, a series of profound institutional reforms occurred, accelerating A-shares’ integration with global capital markets. Major international index providers began including A-shares in their global indices, bringing considerable incremental funds.

• MSCI announced that starting from June 2018, A-shares would be formally included in its emerging markets index.
• FTSE Russell also gradually included A-shares in its global stock index series around the same time.

At the same time, capital market reforms did not stop. In July 2019, the Shanghai Stock Exchange STAR Market officially opened. It piloted the registration system, focusing on serving innovative tech enterprises aligned with national strategies and possessing core technologies, taking a key step toward building a Chinese version of “Nasdaq.”

The 3000-Point Defense Battle: Waiting for a New Cycle in Tug-of-War

Despite positive changes in market structure and institutions, the performance of the Shanghai Composite Index remained sluggish. From 2016 to well after 2020, 3000 points became an important psychological barrier and a focal point repeatedly contested by bulls and bears. The market broke upward multiple times but repeatedly failed to hold, forming a protracted “3000-point defense battle.” This repeated tug-of-war wore down investors’ patience but also provided time for solidifying the market bottom. In this long battle, all participants accumulated strength, jointly awaiting the arrival of the next new cycle.

Looking back over thirty years, Shanghai A-shares have traveled from banker dominance to institutional leadership, deeply imprinted with the essence of policy-driven and strong cycles. The memory fragments of history reveal that every crisis plants the seeds for the next development, and long dark adjustment periods breed new hope. Looking ahead, the registration-based reform centered on information disclosure will continue to deepen, pushing the market toward maturity. For all participants, understanding and respecting cycles, abandoning fantasies of overnight riches, is the way to steadily advance amid noise and silence.

FAQ

What are the “Old Eight Shares”?

The “Old Eight Shares” refer to the eight earliest listed stocks when the Shanghai Stock Exchange opened. At that time, stocks were scarce, triggering a buying frenzy. They represent the initial wealth myths of mainland China’s stock market and opened ordinary people’s memories of stock investing.

What are “large and small non”?

“Large and small non” is a market colloquial term for specific restricted shares. They were non-tradable shares before the split-share reform, unlocked after the reform.

• Large non: Non-tradable shares accounting for more than 5% of total share capital.
• Small non: Non-tradable shares accounting for less than 5% of total share capital. The massive reduction of “large and small non” was one of the important reasons for the 2008 market decline.

Why is 3000 points so important?

3000 points is an important psychological barrier for the Shanghai Composite Index. After the 2015 stock disaster, the market repeatedly contested around this level. It is thus seen as the dividing line between bull and bear markets, representing a key support for investor confidence.

What is the ChiNext?

The ChiNext is a board established for innovative and growth-oriented enterprises that temporarily cannot list on the main board. It aims to provide financing channels for high-tech companies and is hailed as “China’s Nasdaq,” injecting new vitality into the capital market.