TOKYO — Chinese stocks experienced a significant rebound this week, driven by positive developments from startup Moonshot AI, which introduced an AI model comparable to DeepSeek. This innovation revitalized investor confidence in China’s technological advancement relative to Silicon Valley.
While China’s “new economy” dominates headlines, its “old economy” challenges are drawing unfavorable global attention during a critical period for Xi Jinping’s Communist Party. A major property crisis, near-record youth unemployment, strained local government finances, and weak consumer demand are exacerbating market pressures.
Xi’s administration has restructured its regulatory and financial machinery to address the recent tech-share selloff. On Sunday alone, state-affiliated funds committed nearly US$8.9 billion in stock purchases, signaling a coordinated effort to stabilize the market.
Historical instances of the “national team” intervention, such as the 2015 crisis, demonstrate its effectiveness in curbing sharp declines. Current measures include state funding injections, trading suspensions, IPO freezes, and collateral rules to bolster market confidence.
This revival follows investor concerns over volatile chip valuations, compounded by fluctuations in South Korean and Taiwanese markets. Initial efforts to prop up stock prices are showing positive results.
The national team’s acquisition of the ChinaAMC STAR 50 ETF, a key chip-focused fund, helped reverse a 17% decline. By Tuesday, the STAR 50 index surged 11%, its largest single-day gain in two years, while the Shanghai Shenzhen CSI 300 Index rose 1.7% year-to-date.
Analysts note that the national team’s actions provide reassurance but do not address underlying economic weaknesses. Geoffrey Yu of BNY Mellon emphasizes that state-backed purchases stabilize benchmarks but fail to resolve persistent issues like weak domestic demand and the property sector drag.
Economic pressures persist despite robust export growth. Gavekal Dragonomics reports that China’s export-to-manufacturing sales ratio reached 24% in the first four months of 2026, the highest since joining the WTO. However, domestic demand remains sluggish, with flat retail sales and declining fixed asset investment.
Xia Tianchen of the Economist Intelligence Unit acknowledges export strength linked to AI but warns that domestic demand continues to hinder growth. Industrial production growth is concentrated in high-tech sectors, indicating limited spillover effects to the broader economy.
Consumer confidence remains subdued, with households saving heavily and fixed asset investment contracting. Property markets, particularly residential sales, are experiencing significant declines.
While AI-driven investment in hyperscalers and data centers remains strong, traditional sectors face headwinds from policy uncertainty and geopolitical factors. The national team’s interventions are temporary measures, delaying necessary structural reforms.
Long-term solutions require addressing China’s systemic issues, including excessive state-owned enterprise dominance, inadequate private sector space, and risky debt and credit bubbles. Premier Li Qiang’s emphasis on high-tech sectors highlights the need for sustainable economic diversification.
Beijing’s focus on short-term market stabilization contrasts with the need for comprehensive reforms to rebuild investor trust. A weaker yuan could boost exports but poses risks to indebted property developers, a concern for the administration.
Ultimately, China’s economic challenges require pursuing genuine reforms rather than relying on cyclical market interventions. The national team’s actions offer temporary relief but cannot substitute for addressing root causes of stagnation.
