[China Watch] China Redirects Household Funds From Property to Equities, but CXMT Frenzy Leaves Economic Recovery in Doubt

Property downturn weakens both land-finance revenues and household wealth foundations
State capital and policy finance deployed to build equity-market-centred capital circulation
Stock-market boom coexists with real-economy stagnation, exposing limits of the growth transition

China is accelerating efforts to reshape its growth model by steering household funds once tied up in property into the stock market. As the property slump simultaneously erodes local governments’ land-finance revenues and households’ capacity to accumulate wealth, Beijing is deploying state capital and policy finance to cultivate equities as a new hub for capital circulation. During this process, ChangXin Memory Technologies (CXMT), China’s leading memory-chip maker, achieved a record-breaking initial public offering (IPO). Yet the company’s valuation has risen far beyond its technological capabilities while the real economy remains weak, laying bare the limits of policy-led stock-market support. The fact that many Chinese companies continue to seek Wall Street listings despite the pressure of U.S. regulatory restrictions also suggests that confidence in, and price-discovery functions of, mainland capital markets have yet to take firm root.

Retreat of the Property-Led Growth Model

According to the Hong Kong-based South China Morning Post (SCMP) on July 28, retail investors submitted subscriptions exceeding 200 times the shares on offer in CXMT’s recent $9.8 billion IPO, an extraordinary surge of demand. Tan Kong Yam, a professor at Nanyang Technological University, interpreted the phenomenon as signalling a broad structural transition in Chinese society—from a country whose wealth is held in property assets to one centred on ownership of high-technology equities.

Indeed, revenue from the transfer of state-owned land-use rights in the first half, released by China’s Ministry of Finance on July 22, totalled $143.2 billion, down 31.5% from a year earlier. Local governments’ own government-managed fund revenue also fell 25.6% over the same period. Land-sale proceeds had long served as a critical source of funding for infrastructure investment and public-service spending, but the traditional fiscal-circulation mechanism has weakened rapidly as developers’ capacity to acquire land has been exhausted.

Demand and investment indicators for the property sector itself have likewise failed to show signs of recovery. According to China’s National Bureau of Statistics, property-development investment fell 17.2% year on year last year, while the value of new-home sales declined 12.6%. New housing starts dropped by more than 20%. The former growth chain—in which development, presales and land transactions expanded in tandem—has thus weakened simultaneously amid shrinking demand, mounting inventories and tightening funding conditions.

Policy Focus Shifts Toward Capital Markets

The fiscal foundations of local governments are also under strain. Chinese local governments have relied on land-use-right sales as a core funding source for urban infrastructure investment and fiscal expenditure. As developers’ ability to purchase land has diminished, this revenue base has weakened sharply, while debt accumulated through local government financing vehicles (LGFVs) has further narrowed fiscal room for manoeuvre. Central-government transfers and expanded special-bond issuance are helping to offset the gap, but they face substantial constraints in replacing the scale and immediacy once provided by land finance.

Policy priorities have consequently shifted from expanding supply to managing inventories and urban renewal. Rather than indiscriminately increasing new-home supply, Chinese authorities are placing greater emphasis on clearing unsold homes, renovating ageing residential districts and ensuring the completion of housing projects. These measures are necessary to stabilise the housing market, but they differ markedly from the previous model of rapidly lifting nominal growth through construction investment and land transactions. As the era in which property served as a dependable channel for household wealth accumulation draws to a close, authorities face the task of finding a new destination for those funds.

A-Share Support Measures Mobilise Long-Term Capital and State-Owned Insurers

To fill this vacuum, the Chinese government has broadened its equity-market support measures since 2024. Central Huijin Investment, a state-owned investment institution, repeatedly expanded its purchases of exchange-traded funds (ETFs), signalling its commitment to market stability. Funds linked to major state-owned enterprises and sovereign wealth funds also supported supply and demand in key indices and strategic-industry stocks. The structure in which state-backed funds emerge as buyers during market declines has provided investors with a psychological safety net akin to a policy put option.

According to Goldman Sachs, the so-called “national team,” including Central Huijin, made an estimated $108.3 billion in net purchases of A-shares in 2024. In the same year, Central Huijin’s ETF holdings expanded more than sevenfold from the previous year to exceed $146.4 billion. The practice of state institutions buying index-tracking products during market sell-offs has become a standing stabilisation mechanism rather than an emergency measure.

The People’s Bank of China also opened liquidity channels directly connected to the stock market. In September 2024, the central bank introduced a $73.2 billion swap facility enabling securities firms, funds and insurers to pledge their assets in exchange for liquidity to purchase shares. It also opened a $43.9 billion relending window to support listed companies and major shareholders in conducting share buybacks and increasing their stakes. Last year, authorities broadened channels for long-term capital by requiring public funds to increase their A-share holdings by at least 10% annually for three years and encouraging large state-owned insurers to allocate 30% of new premium income to equities.

The same intervention model operated during the sharp technology-stock selloff earlier this month. China Reform Holdings deployed more than $7.3 billion, using relending facilities and its own funds, for share buybacks and stake increases, while affiliates of China Chengtong Holdings purchased $1.5 billion in Chinese equities. Considering that securities transaction stamp-duty revenue rose 97.3% in the first half on the back of higher trading turnover, Beijing has effectively incorporated stock-market liquidity and price stability into the key targets of macroeconomic management.

These measures are also intertwined with China’s strategy to revive domestic demand. Falling property prices have damaged household wealth and weakened consumers’ spending capacity. If authorities contain stock-market volatility while supporting technology companies’ IPOs, rights issues and corporate-bond issuance, they can channel household savings into financial markets while expanding funding for corporate capital expenditure and research and development (R&D). Financial policy designed to absorb private savings into capital markets and supply them to strategic industries sits alongside fiscal support for semiconductors, artificial intelligence (AI) and advanced manufacturing as a key funding pillar of Beijing’s “new quality productive forces” strategy.

Policy and Liquidity Fuel an Externally Impressive but Internally Fragile Boom, While Advanced-Process Barriers Remain

CXMT’s first-day trading performance encapsulated the explosive force of a stock market driven by the combination of policy support and household liquidity. On July 27, CXMT closed at $7.17 on Shanghai’s STAR Market, the technology-focused board of the Shanghai Stock Exchange, 466% above its IPO price of $1.27. Its market capitalisation at the close reached $483.2 billion, comfortably surpassing the $402.6 billion valuation of Industrial and Commercial Bank of China (ICBC), the previous market-cap leader. The base offering amounted to $84.8 billion and reached $97.5 billion including the greenshoe option, while the retail subscription ratio reached 212 to one. This was equivalent to roughly 10 times the scale of retail subscriptions seen during SpaceX’s IPO.

CXMT holds particular significance for the Chinese government. It is China’s largest D-RAM manufacturer and accounted for an estimated 7.7% of the global D-RAM market last year. With U.S. export controls on advanced semiconductor equipment tightening, China regards reducing external dependence in the memory-chip supply chain as an industrial-security priority. The fact that state-owned and state-linked shareholders held roughly 36% of the company before the listing further demonstrates CXMT’s position as a key pillar of national industrial policy.

However, CXMT’s competitiveness appears to have been heavily priced in relative to its first-day market capitalisation. The company lags Samsung Electronics, SK hynix and Micron in high-bandwidth memory (HBM), a core component of AI accelerators, as well as in advanced manufacturing processes. U.S. export controls also limit its ability to obtain advanced equipment from overseas suppliers such as ASML. With a limited free float, rising D-RAM prices, demand for domestic substitution and policy support all reflected in its share price at once, the current valuation carries a strong element of pricing in future catch-up well in advance.

Persistent Divergence From the Real Economy

Behind CXMT’s record-setting success, domestic demand and private investment remain subdued. China’s gross domestic product (GDP) growth slowed to 4.3% year on year in the second quarter from 5.0% in the first quarter, while retail-sales growth stood at just 1.3% in the first half. Fixed-asset investment fell 5.7% over the period, and private fixed-asset investment declined 8.5%. Profits at industrial firms above designated size rose 18.7%, but gains were concentrated in a limited number of sectors: profits in electronics and raw-material manufacturing surged 96.9% and 71.7%, respectively. As AI demand and strong exports lifted profitability in selected industries, domestic demand and private capital continued to contract, leaving little basis for interpreting the swelling market capitalisation of technology stocks as a broad-based recovery in the real economy.

The continued movement of Chinese companies toward overseas capital markets further illustrates this reality. According to Reuters, 36 Chinese small and medium-sized companies listed on U.S. exchanges in the first half of last year alone, while the annual total for 2024 reached 64. More than 40 Chinese companies were also waiting to list on Nasdaq at the time. The result reflects both higher barriers to domestic listings and the continued appeal of the deep liquidity, industry-specialist investors and dollar-funding capacity offered by U.S. markets.

While mainland Chinese listing reviews place significant weight on profitability, company-size requirements and alignment with national industrial-policy objectives such as technological self-reliance, U.S. markets allow companies to enter the listing process once they meet prescribed disclosure and accounting standards, and their review periods are generally shorter than those in mainland China. U.S.-China tensions and regulatory pressure from the U.S. Congress remain risks for overseas listings, but Chinese companies still need to secure a global investor base independently of the policy premium available in mainland equity markets.