Chinese Stocks Fall into Bear Market as CSI 300 Extends 10-Week Decline

China’s key equity index slipped into bear-market territory on Thursday, dropping 20% from its peak in June as a relentless multi-month sell-off across mainland exchanges continues to intensify.

The CSI 300 index, which monitors 300 major stocks listed across Shanghai and Shenzhen, fell more than 1% on Thursday alone. Data from LSEG shows the benchmark has dropped for 10 straight weeks and is down 2.6% over the current week, reflecting persistent strain across the domestic market.

Structural Headwinds and Retail Volatility

Market observers point to structural imbalances lingering in the world’s second-largest economy after years of aggressive industrial expansion. “I think China is really struggling with reining in the problems that they’ve had in the past from the overbuild of capacity and other things,” said Jordan Cvetanovski, chairman and CIO at Pella Funds. He noted that corporate profit margins have suffered even in globally competitive sectors like battery manufacturing, though he maintains select positions there.

A broader economic slowdown is compounding these market pressures. China recorded its lowest industrial profit growth of the year in September, following its slowest second-quarter economic expansion in over three years. A prolonged downturn in real estate alongside soft domestic consumer demand continue to drag down overall growth.

Market dynamics are further heightened by the unique structure of Chinese exchanges. HSBC data shows individual retail traders drive 90% of daily trade volume in China. By comparison, retail participation accounts for roughly 20% to 25% of trade volume on the New York Stock Exchange.

“For Chinese, it’s about wealth preservation,” said Shaun Rein, managing director at China Market Research Group. Rein explained that retail investors are rushing to exit equities in favor of safer holdings like time deposits, driven by weakening labor conditions and the housing slump.

Long-Term Outlook

Despite expecting ongoing near-term pressure from geopolitical friction, artificial intelligence valuation concerns, and muted consumer sentiment, Rein believes the equity downturn is overdone. He highlighted steady export performance and nascent property price stabilization across China’s largest cities as positive underlying indicators.

“It’s a crisis of confidence right now not a crisis in the economy,” Rein noted, forecasting a strong recovery for Chinese equities in 2027.

Other market strategists see potential catalysts emerging sooner from tech innovation. Daniel Gerard, senior multi-asset strategist at State Street Markets, suggested that China’s advancing capabilities in artificial intelligence could bring international investors back into domestic equities even before broader corporate earnings fully rebound.