China's equity markets reached a ten-year high on August 20, 2025, with the Shanghai Composite Index closing at 3,766 points. This significant upswing is primarily driven by substantial foreign capital inflows and a renewed optimism surrounding China's economic outlook.
The surge is largely attributed to increased confidence from international investors, bolstered by the Qualified Foreign Institutional Investor (QFII) program. In the first half of 2025, QFIIs invested approximately 6.8 billion yuan (about $950 million) into over 70 Chinese A-share companies across key sectors such as automobiles, pharmaceuticals, and food and beverages. This strategic investment reflects a broad belief in China's growth potential.
Global investors have maintained a positive outlook on China's capital markets throughout 2025, supported by expectations of economic stabilization through targeted policy stimulus and a projected recovery in corporate earnings. Analysts anticipate that A-share listed companies could experience earnings growth of around 13.6% by the end of the year, positioning China's market favorably among major global economies. This positive sentiment is occurring against a backdrop of China's economic resilience, with the nation reporting a 5.3% year-on-year GDP growth in the first half of 2025.
Several factors are contributing to this market momentum, including easing trade tensions and proactive domestic policies aimed at curbing excessive competition and industrial overcapacity, which have fostered a more favorable investment environment. Reforms such as tax incentives for retail investors and the relaxation of equity ownership rules are also stimulating demand from both domestic and international participants. The strategic reallocation of assets, including household savings, into equities is a key driver of the current market strength.
Expert analysis suggests the rally is supported by strong liquidity and positive policy signals, creating a cycle of market gains and increased fund inflows. Fund managers note that as overseas markets anticipate interest rate adjustments, China's domestic policy support is enhancing risk appetite. This environment, coupled with a structural rebalancing towards consumption and services, is creating compelling opportunities for sustained growth and deeper integration into the global financial landscape. The continued influx of foreign investment signals growing trust in China's economic development and its evolving role in the global economy.