The discourse surrounding the revitalization of China's capital markets has surged to the forefront since high-level authorities first declared, over a year ago, their intentions to "activate the capital markets and boost investor confidence." These words were echoed during a decisive meeting where officials emphasized the necessity of leveraging policy capacities effectively and adopting precise strategies to promote high-quality economic growthToday, as we look back on this proclamation, the urgency and significance of this initiative come into sharper focus.

The rationale behind advocating for a pronounced revival in capital markets is increasingly undeniable, especially when examining China's current economic landscape, which faces significant challenges, particularly within the beleaguered real estate sectorIt is recognized that bolstering the stock market can lead to increased profits for investors, thereby serving as a catalyst for stimulating domestic economic development

Fostering investor confidence in this environment is no longer merely an option; it is a critical lever in steering China's economy towards a path of revival.

However, the unfortunate reality is that this well-intentioned directive has not translated into tangible outcomesTake a snapshot of the stock market performance from exactly one year agoOn July 24, 2022, the Shanghai Composite Index stood at 3,164 points, with the Shanghai market seeing a trading volume of 260.1 billion yuanMeanwhile, the Shenzhen Composite Index closed at 10,747 points, and its market recorded a turnover of 398.8 billion yuan, culminating in a total trading value across both exchanges of approximately 658.9 billion yuanFast forward to July 24, 2023, and the scene is notably stark — the Shanghai Composite Index has fallen to 2,901 points with a daily trading volume of 288.7 billion yuan, while the Shenzhen index has sunk to 8,493 points, amassing a turnover of 338.6 billion yuan, resulting in a combined trading figure of just 627.3 billion yuan.

This comparative analysis reveals a disconcerting trend: despite the high-level calls for invigorating the markets, investor action and market activities have not only stagnated, but they have actually contracted

• Global Antitrust Pressure Mounts on Nvidia
• Fed's December Rate Cut Probability Surges
• Market Volatility Not Caused by Retail Investors
• New Geely: Can 2,700 RVs a Year Sustain an IPO?
• Over 4,700 Stocks Decline as Domestic Capital Dumps 66 Billion

The Shanghai index is down by 263 points (a decline of 8.31%), while the Shenzhen index has suffered an even steeper drop of 2,254 points (20.97%). The disparity in performance becomes even clearer when we consider that the Shanghai market, heavily influenced by a few large state-owned enterprises, has weathered the storm comparatively better than Shenzhen, revealing a more accurate depiction of investor sentiment through its larger downturn.

So, what accounts for this continued malaise in the capital markets despite the leadership's resolute intentions? The answer lies in the juxtaposition of numerous regulatory efforts that have been enacted over the past year and the reality of market dynamics that remain unchangedThroughout the first half of the year alone, regulatory bodies including the China Securities Regulatory Commission (CSRC) and various stock exchanges have instituted over seventy new regulatory measures

A push for foundational strength and stringent regulation has sought to enhance the resilience, effectiveness, and predictability of market operationsHowever, the resultant framework, dubbed "1+N," which aims to define a more robust policy environment for the capital markets, has yet to yield noticeable benefits for investors.

Despite these apparent advancements, investor confidence has mysteriously dwindled even further than it stood a year agoThis paradox signals a disconnect between the policymakers' intentions and the realities felt by everyday investorsThe crux of the issue seems to lie in a fundamental misalignment: the regulator's focus on the symptoms of market woes, rather than targeting the core issues at playIn this regard, while the authorities may have diagnosed the situation correctly, they have issued prescriptions that lack the necessary potency to remedy a severely ill A-share market.

Several key points underscore this miscalculation

First, there remain imperative mandates that have not been adequately addressedWhile regulators implemented a pause on margin lending from July 11, numerous other aggressive trading strategies—including quantitative trading and the issuance of new stocks—continue unabatedThe practice of placing restrictions on major shareholders during periods of market decline was noticeably absent, leading to sustained market outflows that contribute to investor disillusionment.

Second, the reforms aimed at refining the initial public offering (IPO) system have yet to grapple with significant pitfallsThe market continues to witness overvaluation and poorly-performing firms entering the public domain without sufficient scrutiny, undermining the credibility of the market itselfFurthermore, the issues pertaining to the shareholding structure of listed companies have persisted in the shadows, allowing major stakeholders to exploit the system, ultimately treating the marketplace as their private cash cow.

Moreover, the critical issue of shareholder reductions has persistently eluded effective oversight, reflecting a failure to enforce robust rules against larger shareholders selling off their stakes without accountability

These shortcomings underscore a broader need for stronger investor protection frameworks, particularly in light of high-profile company delistings where shareholder interests have gone unaddressed.

Finally, there exists an evident reluctance to deploy crucial market stabilization instruments, such as the establishment of a market stabilization fundSuch a fund could invigorate market confidence and encourage participation, but has regrettably been absent from the toolkit made available to regulatorsAuthorities have pinned their hopes on the limited increases in exchange-traded funds, which, while marginally beneficial, lack the capacity to engage broader segments of the market and, thus, fail to adequately instill confidence among investors.

In summary, while the intent behind reviving China's capital markets is commendable and necessary, the disconnect between policymaking and practical application has resulted in a situation where investor confidence remains elusive