2025 Mainland China Stock Investment Guide: A Complete Analysis from Market Structure to Stock Selection Strategies

Taiwanese investors are both unfamiliar with and curious about the Chinese stock market. The market performance over the past year is indeed worth noting— the Shanghai Composite rebounded from a low point, with gains approaching 50%, reaching a ten-year high. But before making investment decisions, we need to deeply understand the operational logic, risk factors, and genuine investment opportunities of the Chinese stock market.

Why invest in the Chinese stock market? Where are the current market opportunities?

The recovery of the Chinese stock market began in September 2024. On the 24th of that month, China’s central bank and financial leaders held a rare joint press conference, announcing a series of economic support measures, marking the start of a new upward trend. Since then, the Shanghai Composite has continued to rebound from its trough, reaching 3,950 points by October 24, 2025.

More importantly, the Chinese government has explicitly stated its goal to develop the stock market into a wealth reserve platform similar to the US stock market. Regulatory authorities have required insurance companies and state-owned public funds to increase their stock asset allocations, indicating ongoing institutional capital inflows.

International investment banks are optimistic about the future. Goldman Sachs predicts that major indices will rise by about 30% by the end of 2027, and J.P. Morgan also believes the CSI 300 index will perform well over the next 12 months. The consensus among these institutions is that, against the backdrop of recovering corporate profitability and revaluation of valuation systems, the long-term allocation value of the Chinese stock market is increasing.

What are the components of the Chinese stock market? The five major indices you must know

Before investing in the Chinese stock market, it is essential to understand its basic structure. The market mainly focuses on five indices, four of which are tradable:

The Shanghai Composite Index is the oldest and most well-known indicator, representing the overall trend of the Chinese stock market, but it itself is not tradable and serves only as a market sentiment indicator.

The four tradable major indices each have their characteristics:

• CSI 300 Index: a focal point for both domestic and overseas investors, comprising high-quality companies globally recognized
• SSE 50 Index: representing large-cap stocks, including the 50 largest listed companies by market cap
• CSI 500 Index: covering mid-cap stocks, reflecting the performance of medium-sized enterprises
• CSI 1000 Index: mainly covering small-cap stocks, representing growth-oriented companies

All four indices have corresponding ETFs and derivatives (futures, options), forming core references for trading strategies. Among them, the CSI 300 index is the most representative and is the preferred benchmark for many investors.

The industry landscape of the Chinese stock market: an overview of leading sectors

Divided by Shenwan’s first-level industry classification, the Chinese stock market shows a clear structural feature, mainly supported by finance and manufacturing sectors.

The top ten industries by market value (as of October 24, 2025):

The dominant position of the financial sector is unshakable, with banks and non-bank financial institutions totaling over 23 trillion RMB in market value. This indicates a high correlation between the Chinese stock market and financial policies. Electronics and communications sectors lead in gains, rising 50.59% and 67.91% respectively, directly reflecting the AI boom and emerging industry rise.

The three main drivers of the Chinese stock market: policy, liquidity, and fundamentals

To understand the operation logic of the Chinese stock market, three key drivers must be grasped:

Policy-driven influence is the most direct. Historically, the “Four Trillion Yuan” stimulus policy triggered a strong bull market in 2009, while the “leverage bull” in 2014-2015 was driven by loose monetary conditions. However, these policy-driven markets often ended quickly after shifts. Institutional reforms like the share reform and registration system reform can also trigger major upward phases.

Liquidity is highly sensitive. Central bank reserve requirement ratio cuts, interest rate reductions, and increased credit supply can directly trigger bull markets; conversely, rate hikes, reserve ratio hikes, and financial deleveraging often mark the end of bull runs. These are the most immediate investment signals in the Chinese stock market.

Fundamentals provide sustained support. When macroeconomic conditions improve steadily and corporate profits generally rise, it forms a healthy foundation for a bull market; on the other hand, economic downturns and profit declines will constrain market performance.

Historical lessons of the Chinese stock market: why is volatility so intense?

Established in 1990, the Chinese stock market is relatively young but has experienced several dramatic bull-bear cycles. Its trend differs markedly from the long-term slow bull of the US market, characterized by “short bull, long bear, rapid surges and crashes.”

2010-2014: aftermath of policy effects. The Four Trillion stimulus led to inflation and overcapacity, prompting monetary tightening and a prolonged market downturn.

2015-2016: deleveraging crisis. Regulators cleaned up off-market financing, triggering chain reactions, “all-stock limit down” days, and the failure of circuit breakers, rapidly pushing the market into a bear phase.

2022 to September 2024: weak period. Post-pandemic economic recovery fell short of expectations, market confidence waned, and policy interventions failed to reverse the trend, leading to choppy bottoming.

This history repeatedly proves that the Chinese stock market is a typical “policy market,” with cycles revolving around policy changes, liquidity shifts, and fundamental strength.

Future outlook: valuation repair vs. fundamental risks

International institutions are generally optimistic about the future but also recognize current risks.

Optimistic factors: Goldman Sachs predicts that three main drivers will push corporate EPS growth to around 12%—AI reshaping profitability, “anti-involution” policies creating new profit space for companies, and China’s manufacturing going global showing competitiveness. Valuation repair potential is also significant: leading companies in healthcare, finance, and entertainment are trading at historically reasonable levels with room for upside.

Caution signals: However, uncertainties remain. FactSet data shows that although some listed companies’ profits are accelerating, MSCI China index profit forecasts for 2025-2026 are still being revised downward. This indicates that recent stock market gains are driven by valuation expansion rather than fundamental improvement.

Currently, the MSCI China forward P/E ratio is 12.8x, above the 10-year average of 11x. While lower than the S&P 500’s 22x, this valuation gap may stem from lower profit margins of Chinese tech firms, regulatory uncertainties, early-stage development, and fierce competition. In other words, if economic recovery underperforms expectations and corporate profits cannot support current valuations, the market faces correction risks.

How can Taiwanese investors access Chinese stocks?

Taiwanese investors mainly have two channels to enter the Chinese stock market:

Domestic channels (CFA). Through local Taiwanese securities firms such as Yuanta, KGI, and Fubon, which offer this service. The advantage is compliance and transparency; the downside is relatively higher costs.

Overseas channels. Opening accounts with foreign brokers, such as US or Hong Kong brokers, allows direct access. The advantages are lower fees and more choices; the disadvantages are the need to complete account opening procedures independently.

When choosing a broker, consider platform legitimacy and strength, ease of fund transfer, available trading products, operational smoothness, and Chinese language support.

It is worth noting that many high-quality Chinese companies are listed in Hong Kong and the US, such as Tencent and Alibaba. These are also worth attention for Taiwanese investors, who can participate via US or Hong Kong stock channels.

Analysis of five representative companies

Based on market cap, industry, ROE, and other factors, the following five companies are notable investment representatives:

Cambricon (chip industry, ROE 25.21%): a leading Chinese AI chip designer with scarce technological advantages, in a booming industry, and a market capital focus.

Contemporary Amperex Technology (CATL) (power lithium batteries, ROE 17.76%): the global leader in power batteries, benefiting from energy transition and carbon neutrality trends with long-term growth certainty.

Ningbo Bank (banking, ROE 6.9%): with unique governance and talent advantages, focusing on high-value clients, with steady performance.

Hengrui Medicine (pharmaceuticals, ROE 9.42%): strong continuous R&D innovation, with rare value in China’s pharmaceutical industry upgrade.

China Mobile (mobile communications, ROE 8.3%): a monopoly-based main business providing stable cash flow and high dividend returns to shareholders.

Investment strategy recommendations

For long-term allocators: The value of the Chinese stock market is emerging. Corporate profit improvements and valuation repair are jointly boosting allocation value, especially in portfolios composed of major indices like CSI 300 and CSI 500.

For investors with lower risk tolerance: Consider stable cash flow through large blue-chip and banking stocks to reduce volatility.

For growth-seeking investors: Leading companies in electronics, healthcare, and new energy sectors offer higher return potential but come with corresponding risks.

Most importantly, given the current valuation recovery, be cautious of risks if macroeconomic recovery falls short of expectations. Regularly review fundamental trends, avoid blindly chasing highs, and maintain a prudent investment approach.