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High-Quality Development of Capital Markets – A Perspective Based on Confidence Dynamics

Jan 21-2026   



*This article is based on the keynote speech delivered by Xu Jianguo, Tenured Associate Professor at Peking University’s National School of Development and Jin Guang Scholar, writing under the pen-name Xu Yuan.


The Root Causes of the Stock Market Rally: Enhanced Market Confidence & Marginal Improvements in Corporate Earnings

From a market-performance perspective, major stock indices posted significant gains from September 2024 to September 2025. The ChiNext and STAR Market indices almost doubled, while other indices rose by roughly 30–40%. Notably, the market showed considerable resilience to external shocks such as U.S. tariff hikes, indicating that the rally was not a fleeting phenomenon but a sign of sustained momentum. Technology, computing and artificial-intelligence-related industries delivered standout gains, while sectors and enterprises with heavy export exposure delivered comparatively robust share-price performance. How should we interpret this?

Here I offer a somewhat unconventional view. The prevailing sentiment calls for proactive fiscal policy to underpin growth. While I do not disagree—such measures can provide short-term support—my review of the literature and international evidence suggests that, although fiscal stimulus may stabilise the economy in the short run, it is largely ineffective at generating spontaneous, endogenous long-term growth.

In short, while the economy is stabilising and certain high-tech, export-oriented firms are displaying positive technological and financial trends, the aggregate revenue and net profits of A-share listed companies have shown virtually no significant growth—far below the surge in equity prices. This implies that market pricing has shifted from fundamentals to sentiment and expectations, turning the market into a “game of confidence.” It is not the enterprises or their products that have changed substantively, but the market environment and the lens through which investors view it.

The crucial question, then, is why our worldview has changed.

Where Does Confidence Come from?

The core issue is why investor confidence has shifted. I argue that the transformation stems from the reconstruction of cognitive frameworks after a series of concurrent shocks.

The 9/24 shock: since 24 September 2024, coordinated monetary and fiscal policies have sent an unambiguous signal to stabilise growth, and follow-up measures have reinforced expectations of continued support. The DeepSeek shock: the advent of DeepSeek demonstrated China’s formidable capabilities in large language models. The Trump shock: on 2 April 2025 the Trump administration imposed indiscriminate tariffs, shattering established international rules; China’s effective response bolstered confidence in national resilience. The tariff-negotiation shock: Sino-U.S. tariff talks produced positive results, stabilising trade expectations. The anti-involution shock: domestic anti-overcapacity measures have affected inflation expectations and, to some extent, market confidence. The Yalong River shock: construction of hydropower stations on the Yarlung Tsangpo has fuelled speculation about China’s long-term strategic reach and resource-mobilisation capacity when viewed through a geopolitical lens.

Thus the entities remain the same, and revenues and profits are largely unchanged; only our perception of their value has risen sharply. This offers one reading of the current A-share rally.

A Spirit of Reconciliation

Underlying these events is a shift in societal mindset that I term “reconciliation.” This reconciliation follows an internal logic. Although market sentiment had been pessimistic, the stabilisation of the economy, the implementation of policy, technological breakthroughs and effective management of external pressures since the second half of 2024 have fostered a more rational and accommodating public assessment of China’s trajectory. This is not blind optimism but a reassessment grounded in tangible improvements. Every nation faces institutional challenges, yet China possesses distinct strengths and resilience.

In sum, the core logic behind this A-share rally is not a recovery in corporate profits but a valuation re-rating rooted in restored confidence—confidence that stems from policy support, technological advances, effective responses to external shocks and the reinforcement of national strategic narratives.

Yet returning to the central concept of “high-quality development,” the key question remains: can a confidence-driven rally be sustained? The bedrock of high-quality development in capital markets is the continuous improvement of market mechanisms to foster long-term value creation. While the ignition of confidence is welcome, without fundamental underpinnings and durable institutional safeguards the sustainability of short-lived prosperity remains uncertain.


High-Quality Development of Capital Markets – A Perspective Based on Confidence Dynamics

Jan 21-2026   



*This article is based on the keynote speech delivered by Xu Jianguo, Tenured Associate Professor at Peking University’s National School of Development and Jin Guang Scholar, writing under the pen-name Xu Yuan.


The Root Causes of the Stock Market Rally: Enhanced Market Confidence & Marginal Improvements in Corporate Earnings

From a market-performance perspective, major stock indices posted significant gains from September 2024 to September 2025. The ChiNext and STAR Market indices almost doubled, while other indices rose by roughly 30–40%. Notably, the market showed considerable resilience to external shocks such as U.S. tariff hikes, indicating that the rally was not a fleeting phenomenon but a sign of sustained momentum. Technology, computing and artificial-intelligence-related industries delivered standout gains, while sectors and enterprises with heavy export exposure delivered comparatively robust share-price performance. How should we interpret this?

Here I offer a somewhat unconventional view. The prevailing sentiment calls for proactive fiscal policy to underpin growth. While I do not disagree—such measures can provide short-term support—my review of the literature and international evidence suggests that, although fiscal stimulus may stabilise the economy in the short run, it is largely ineffective at generating spontaneous, endogenous long-term growth.

In short, while the economy is stabilising and certain high-tech, export-oriented firms are displaying positive technological and financial trends, the aggregate revenue and net profits of A-share listed companies have shown virtually no significant growth—far below the surge in equity prices. This implies that market pricing has shifted from fundamentals to sentiment and expectations, turning the market into a “game of confidence.” It is not the enterprises or their products that have changed substantively, but the market environment and the lens through which investors view it.

The crucial question, then, is why our worldview has changed.

Where Does Confidence Come from?

The core issue is why investor confidence has shifted. I argue that the transformation stems from the reconstruction of cognitive frameworks after a series of concurrent shocks.

The 9/24 shock: since 24 September 2024, coordinated monetary and fiscal policies have sent an unambiguous signal to stabilise growth, and follow-up measures have reinforced expectations of continued support. The DeepSeek shock: the advent of DeepSeek demonstrated China’s formidable capabilities in large language models. The Trump shock: on 2 April 2025 the Trump administration imposed indiscriminate tariffs, shattering established international rules; China’s effective response bolstered confidence in national resilience. The tariff-negotiation shock: Sino-U.S. tariff talks produced positive results, stabilising trade expectations. The anti-involution shock: domestic anti-overcapacity measures have affected inflation expectations and, to some extent, market confidence. The Yalong River shock: construction of hydropower stations on the Yarlung Tsangpo has fuelled speculation about China’s long-term strategic reach and resource-mobilisation capacity when viewed through a geopolitical lens.

Thus the entities remain the same, and revenues and profits are largely unchanged; only our perception of their value has risen sharply. This offers one reading of the current A-share rally.

A Spirit of Reconciliation

Underlying these events is a shift in societal mindset that I term “reconciliation.” This reconciliation follows an internal logic. Although market sentiment had been pessimistic, the stabilisation of the economy, the implementation of policy, technological breakthroughs and effective management of external pressures since the second half of 2024 have fostered a more rational and accommodating public assessment of China’s trajectory. This is not blind optimism but a reassessment grounded in tangible improvements. Every nation faces institutional challenges, yet China possesses distinct strengths and resilience.

In sum, the core logic behind this A-share rally is not a recovery in corporate profits but a valuation re-rating rooted in restored confidence—confidence that stems from policy support, technological advances, effective responses to external shocks and the reinforcement of national strategic narratives.

Yet returning to the central concept of “high-quality development,” the key question remains: can a confidence-driven rally be sustained? The bedrock of high-quality development in capital markets is the continuous improvement of market mechanisms to foster long-term value creation. While the ignition of confidence is welcome, without fundamental underpinnings and durable institutional safeguards the sustainability of short-lived prosperity remains uncertain.