The author of this article is Wei Fengchun, Chief Economist of Chuangjin Hexin Fund.
Last week's Chief Perspective noted that the fervor for narrative-driven trading at the beginning of 2026 has shown signs of fatigue, with the logic of a fundamentals-driven slow bull market quietly reasserting itself. Recent regulatory actions to standardize online information management are essentially aimed at curbing the risks of sharp market fluctuations caused by purely narrative-based trading. History has repeatedly demonstrated that such狂热 and panic, detached from fundamentals, can not only brew localized financial risks but, if mishandled, may also transmit to the real economy, creating greater negative externalities. Therefore, guiding investors from narrative trading to fundamentals-based trading is an inevitable move by the government to correct market failures, similar in purpose to the authorities' use of "quasi-stabilization fund" measures to support the market during the external shocks of 2025. While investors often readily accept the latter, they frequently misunderstand the former. When viewed within the grand narrative and practical path of Chinese-style modernization, these decisions appear logical and far-sighted.
This Chief Perspective will start from the underlying logic of financial philosophy, distill the core functions of the Chinese stock market in the modernization process, and analyze the current imbalances in the performance of these functions. It will also review the profound lessons from historical booms and busts, fostering a renewed understanding of government efforts to correct market failures, thereby facilitating strategic adjustments for long-term value discovery.
In the grand narrative of Chinese-style modernization, the stock market has long transcended its role as a mere financing and trading platform, evolving into a core hub connecting people's livelihoods, industrial upgrading, and national strategy. From the underlying logic of financial philosophy, the core functions of the Chinese stock market can be condensed into a triple closed loop: "balance sheet repair, financing for technological growth, and market-based pricing of existing assets." This framework not only refines the current operational laws of the market but also serves as an annotation on the symbiotic relationship between Chinese finance and industry.
"Balance sheet repair" serves as the starting point for people's livelihoods within the triple closed loop. As the terminal of the economic cycle, the health of the household sector's balance sheet directly determines consumption momentum and economic resilience. Against the backdrop of high household savings and increased volatility in traditional assets like real estate, a profit-driven slow bull market in stocks can achieve steady appreciation of household equity assets, thereby hedging against structural wealth risks, boosting consumer confidence through the wealth effect, and injecting sustained momentum into the real economy from the demand side. The essence of this function is to genuinely return financial market gains to the household sector, consolidating the micro-foundation of common prosperity through a market-based wealth distribution mechanism. Only when household balance sheets are repaired can the domestic demand cycle be truly activated, providing a solid livelihood foundation for the modernization process.
"Financing for technological growth and corporate governance empowerment" acts as the core engine of the triple closed loop. During the critical phase of transitioning between old and new growth drivers, strategic areas such as hard tech, advanced manufacturing, and new quality productive forces urgently require continuous investment of long-term capital. Through mechanisms like market-based pricing, information disclosure standards, and equity incentive designs, the stock market provides full lifecycle financing support for sci-tech innovation enterprises. Furthermore, it promotes the modernization of corporate governance through institutional constraints, fostering a deep integration of capital and technology. The essence of this function is the concretization of "finance serving the real economy"—capital is no longer a tool for short-term profit-seeking but becomes a long-term partner in incubating innovation and cultivating new quality productive forces. From the establishment of the STAR Market to the expansion of the Beijing Stock Exchange, the Chinese stock market is gradually building a financing ecosystem adapted to the lifecycle of technology industries, making the virtuous cycle of "technology-capital-industry" a reality.
"Market-based pricing of existing assets" represents the deeper logic of revitalizing存量 resources and optimizing allocation efficiency. During this critical period of industrial transformation, a vast amount of existing assets needs to be revalued and circulated through securitization. The open pricing mechanism of the stock market not only allows the intrinsic value of existing assets to gain market recognition but also improves governance structures and operational efficiency by introducing social capital. The core of this function is to let the market play the decisive role in resource allocation, breaking the value mismatches inherent in traditional administrative valuations, and allowing existing assets to preserve and increase their value in the wave of marketization, ultimately serving national strategic objectives.
These three functions do not exist in isolation but form an organic whole that is mutually supportive and dynamically interconnected: growth in household wealth injects incremental funds into the technology industry; technological breakthroughs enhance the quality of listed companies and feed back into the appreciation of household assets; and the market-based pricing of state-owned assets revitalizes存量 resources, injecting new vitality into the entire economic system. The core of this closed loop is a vivid practice of "vibrant finance leads to a vibrant economy," transforming the stock market from a mere trading venue into a solid financial hub serving Chinese-style modernization. This financial philosophy logic helps anchor the fundamental direction of China's financial reform beneath the surface of market volatility.
As of early 2026, the A-share market exhibits a certain degree of imbalance in the execution of these three functions, which forms the core justification for government intervention to correct market failures, aligning with the underlying logic that "finance serves the real economy, and market mechanisms require policy support."
First, progress in balance sheet repair is relatively lagging. The volatile trend of the A-share market since 2023 has prevented the full release of the household wealth effect. By the end of 2025, the proportion of household stock assets to total household wealth remained below 10%, a significant gap compared to the 20%-30% level in developed countries. High savings and low risk appetite have made it difficult for funds to effectively enter the market, continuously suppressing consumption momentum. If the market experiences irrational declines leading to substantial shrinkage in household wealth, it would further deteriorate balance sheets and weaken the livelihood foundation of the domestic demand cycle.
Second, the implementation of the technological growth financing function is relatively solid. By 2025, the STAR Market and Beijing Stock Exchange had cumulatively raised over 1.5 trillion yuan for more than 1,200 hard-tech enterprises, with strategic fields like semiconductors, artificial intelligence, and new energy accounting for over 40%, effectively supporting the cultivation of new quality productive forces. However, narrative-driven trading still occurs occasionally, such as the short-term overheating in the AI sector in 2023, which diverted funds away from enterprises with genuine technological barriers. This exposes the market's vulnerability when lacking the discipline of long-term capital.
Third, the function of market-based pricing for state-owned assets faces even greater challenges. Currently, state-owned enterprise (SOE) listed companies are generally undervalued; the price-to-earnings ratio of the CSI State-owned Enterprises Index in 2025 was only 11 times, significantly lower than the 15 times for the CSI 300 Index, reflecting that the value of existing assets has not yet been fully recognized by the market. The market either excessively chases restructuring concepts or mistakenly sells off quality assets during downturns; such behaviors deviate from the principle of fair pricing and hinder the function of asset value preservation and strategic support.
These three functions are essentially a symbiotic contract between finance and the real economy. When the spontaneous operation of the market deviates from this contract—whether due to emotional panic leading to irrational sell-offs or narrative狂热 causing increased volatility—it provides ample rationale and legitimacy for government intervention. This intervention is not a denial of market mechanisms but a necessary correction of market failures.
The core lesson from the repeated booms and busts in the Chinese stock market is that market operations have not consistently anchored themselves to the essence of "serving the real economy," repeatedly falling into a vicious cycle of "policy-driven surges—speculative capital influx—bubble bursts," which severely deviates from the three core functions.
During the 2007 bull market, market狂热 pushed the Shanghai Composite Index above 6,000 points, but funds primarily flowed into cyclical stocks and thematic stocks, failing to effectively support technological industrial upgrading or household balance sheet repair. After the bubble burst, household wealth shrank significantly, consumption momentum was suppressed, and financial risks transmitted to the real economy. This event confirms that rallies detached from real economy support are ultimately unsustainable; irrational rises not only fail to repair household wealth but instead amplify systemic risks.
The lesson from the 2015 leverage-driven bull market is even more profound. The泛滥 of off-market margin trading intensified capital speculation, while sci-tech innovation enterprises did not receive long-term capital support; instead, violent stock price fluctuations exacerbated their financing difficulties. Regulatory deleveraging triggered thousands of stocks hitting their daily downside limits, evaporating household wealth and causing爆仓 in listed companies' share pledges, directly threatening the stability of the financial system. This is a typical manifestation of market failure: over-reliance on capital leverage rather than profit drivers caused the stock market to deviate from its original purpose of serving the real economy.
Although the structural行情 post-2020 gradually focused on hard tech and advanced manufacturing under policy guidance, and the STAR Market cumulatively raised over 800 billion yuan for strategic emerging industries, reflecting a partial return of the technological growth financing function, periodic thematic speculation still emerged, exposing the market's structural flaw of being easily driven by sentiment and lacking the constraint of long-term capital.
The core insight from historical lessons is that the healthy operation of the stock market must be anchored by these three functions, relying on a triple guarantee of "policy support + mechanism constraints + long-term capital." Rallies that deviate from this framework, whether irrational surges or panic-driven declines, will harm the bottom lines of people's livelihoods, industry, and national strategy.
Market failure theory indicates that completely free markets struggle to achieve optimal resource allocation efficiency in areas with information asymmetry, externalities, and public good attributes. The Chinese stock market possesses significant public good attributes, bearing the grand mission of serving Chinese-style modernization, achieving common prosperity, and supporting national strategy. It also has strong externalities, as the household wealth effect transmits to consumption, sci-tech financing spills over into industrial upgrading, and state-owned asset pricing diffuses into resource optimization. When investor behavior becomes dominated by short-termism and情绪化, spontaneous market adjustments often fail, making it difficult to maintain the closed-loop operation of the three functions. At such times, moderate intervention by the government as the "visible hand" is an inevitable requirement to correct market failures and safeguard public interests.
This logic is highly consistent with counter-cyclical adjustment theory and the practice of government-guided market economies in development economics. At this specific stage of Chinese-style modernization, the stock market is not merely a market but also a financial infrastructure承载 national strategy. The essence of government intervention is to supplement policy support on the basis of market mechanisms, ensuring that finance始终 serves the real economy, serves people's livelihoods, and serves the broader context of modernization.
Based on the fundamental principles of an effective market and a proactive government, the purpose of government intervention to correct market failures is to ensure the performance of the stock market's three functions. Specifically, we推测 the following actions are likely:
First, safeguard the bottom line for people's livelihoods and ensure the balance sheet repair function. If irrational declines lead to continuous shrinkage of household wealth, it will further抑制 consumption, worsen the domestic demand cycle, and动摇 the micro-foundation of the modernization process.
Second,维护 industrial upgrading and ensure the technological growth financing function does not deviate. Prevent funds from脱实向虚 due to narrative speculation, ensuring that long-term capital truly flows to hard tech and new quality productive forces.
Third,保障 the strategic value of state-owned assets and realize the market-based pricing function. Avoid existing assets being mistakenly sold off or becoming excessively泡沫化, ensuring they play their role in value preservation and resource optimization during the modernization process.
Fourth, prevent systemic financial risks. The lessons from historical booms and busts show that if localized risks are not promptly contained, they can easily扩散 to the entire financial system and the real economy.
The necessity of government intervention is rooted in the public attributes and externalities of the three functions, and in the strategic demands that Chinese-style modernization places on the financial system. Only through moderate and precise intervention can market mechanisms proceed steadily and sustainably on the track of serving the real economy.
In the grand journey of Chinese-style modernization, the Chinese stock market, through the triple closed loop of balance sheet repair, technological growth financing, and market-based pricing of state-owned assets, has become a solid hub connecting people's livelihoods, industry, and national strategy. The essence of this closed loop is the philosophical practice of "vibrant finance leads to a vibrant economy," and the inevitable path for finance to return to its本源 of serving the real economy. When spontaneous market operations deviate from the three functions, moderate government intervention is not only necessary but also a responsibility—it is the guardianship of the livelihood bottom line, the nurturing of industrial upgrading, and the support for national strategy.
Within the grand narrative of Chinese-style modernization, the stock market's three functions—"balance sheet repair, technological growth financing, market-based pricing of existing assets"—collectively constitute the underlying logic of the symbiosis between finance and the real economy. Understanding this financial philosophy logic helps us anchor our direction amidst complex fluctuations. The deepening of this framework not only reveals the inevitability of government two-way intervention but also provides profound insights for investor asset allocation.
As narrative-driven trading gradually wanes in 2026, a fundamentals-driven slow bull market is becoming dominant. Asset allocation should pursue long-term, steady appreciation rather than short-term speculation.
First, the balance sheet repair function启示 us to优先 allocate to broad-based assets that can generate wealth effects and repair household sector leverage. Against the backdrop of high household savings and亟待激活 domestic demand, broad-based ETFs (such as those tracking the CSI 300, CSI 500) and "fixed-income+" strategies should form the core of the large-asset anchor portfolio. These instruments offer relatively controllable volatility and stable dividend returns, enabling profit-driven steady appreciation in a slow bull market, guiding the "relocation" of deposits, boosting consumer confidence through the wealth effect, and consolidating the livelihood foundation. While short-term narrative speculation is tempting, it easily amplifies volatility and deviates from the repair function.
Second, the technological growth financing function points towards strategic allocation in hard tech and new quality productive forces. High-quality targets聚集 in the STAR Market and Beijing Stock Exchange, such as those in semiconductors, AI, and new energy, should occupy the growth core of the equity allocation. The gradual entry of long-term capital and policy support will sustain the virtuous cycle of "capital-technology-industry." Enterprises with genuine technological barriers will realize their value driven by fundamentals. Investors should look beyond thematic speculation, focusing instead on performance delivery and industrial trends, avoiding the脱实向虚 of capital.
Finally, the market-based pricing function for existing assets启示 us to pay attention to revaluation opportunities in quality存量 assets. As securitization accelerates and governance improves, the value of these core assets will gradually be repaired through market-based pricing.
Overall, the core启示 of this analysis is that asset allocation should be anchored in fundamentals, constructing a balanced portfolio of "broad-based anchor + tech growth + SOE value," embracing the logic of market stability under the government's two-way adjustments. Only through long-term holding and contrarian positioning can one share in the institutional dividends of finance serving the real economy during the modernization process, achieving resonance between household wealth and national strategy.
