Chinese shares haven't just had a bad start to 2024. It's been rough going since February 2021, when they hit their most recent peak.
Over the past three years, about $6 trillion — equivalent to roughly twice Britain's annual economic output — has been wiped off the value of Chinese and Hong Kong stocks.
The Hang Seng index has crashed 10% so far this year alone, while the Shanghai Composite and Shenzhen Component indexes are down 7% and 10% respectively.
The astonishing losses, reminiscent of the last Chinese stock market crash of 2015-2016, highlight a crisis of confidence among investors concerned about the country's future.
"The past three years were no doubt a challenging and frustrating period for investors and market participants in Chinese equities," Goldman Sachs analysts wrote in a research note Tuesday. "China … [is] currently trading at suppressed valuations and decade-low allocations across [investment] fund mandates."
The world's second largest economy is plagued by a myriad of problems. They include a record downturn in real estate, deflation, debt, a falling birthrate and shrinking work force, as well as a shift toward ideology-driven policies that has rattled the private sector and scared away foreign firms.
The stock meltdown has made Chinese markets the world's worst performers so far this year. All this is playing out against the backdrop of a global stock market rally, led by Wall Street's record-setting run, and by Japan in Asia.
There are signs the Chinese government is beginning to worry. Reuters reported this week that Beijing asked banks to sell dollars to prop up the yuan, and Bloomberg said Tuesday that the government was preparing to intervene directly to support stocks.
Chinese Premier Li Qiang on Monday ordered officials to take "forceful and effective measures" to stabilize the markets.
But investors are worried about the lack of effective policies from Beijing to spark a sustainable economic recovery.
China's economy grew 5.2% in 2023. That was its slowest pace of expansion since 1990, with the exception of the three pandemic years through 2022. International economists widely expect the country's growth to slow further this year to around 4.5% and drop below 4% in the medium term.
While that may seem reasonable for a major economy, it is far below China's double-digit growth of the past decades. The country may be staring at decades of stagnation to come, analysts have said, as the slowdown is structural in nature and won't be easily reversed.
"There has been increasing confusion over Beijing's policy stance on the economy," Nomura analysts said in a research note late Monday.
"The [central bank] did not deliver a much expected cut of its benchmark lending rates last week. Top officials' comments suggest Beijing is reluctant to seek short-term growth at the cost of increasing long-term risks."
Last week, the People's Bank of China kept its medium-term lending facility rate steady, contrary to market expectations that it would make its first cut since August. On Monday, the central bank also kept its Loan Prime Rate — a key interest rate that influences mortgages — unchanged, further dashing hopes for a cut.
Read more on what Beijing is doing about the crash.
More on China's economic headwinds:
