China’s economy grows but Shanghai index stays 33% below 2007

The Shanghai Composite closed near 4,113 on Friday, roughly 33% below its 2007 peak, even as China’s nominal output has risen about sevenfold over the past 20 years and GDP expanded 5% in the first quarter of 2026. The contrast highlights a gap between the size of the broader economy and the market value of listed companies.

China posted a $1.19 trillion trade surplus in 2025 and has surpassed Japan as the world’s largest auto exporter. The country remains a leading global manufacturer. Final household consumption accounted for about 53% of GDP, compared with roughly 68% in the United States.

Retail investors generate close to 90% of daily turnover on mainland exchanges, compared with about 20% in the United States. That high share of retail trading has been associated with sharp moves around policy announcements and short-term events. Regulators tightened disclosure rules for technology firms after a strong AI-driven run in 2025. The China Securities Regulatory Commission took enforcement actions this year against brokerages over cross-border trading, and retail access to cryptocurrencies remains restricted.

The property sector is a major factor in household balance sheets. Beijing’s 2020 Three Red Lines policy preceded the collapse of large developers including Evergrande and pushed real home prices back toward levels seen around 2005. About 70% of household wealth is held in real estate, and many savers have reduced property purchases and increased cash holdings.

Goldman Sachs projects another 10% drop in home prices before the property market bottoms. Local government debt is estimated at about 18.9 trillion yuan, which analysts say limits fiscal scope for large-scale stimulus. Some analysts expect those pressures to keep household spending and investor confidence constrained into 2027.

The AI sector produced a brief boost to market values. An early 2025 release of a major AI model added roughly $1.3 trillion to technology market capitalization, and a 1.6 trillion-parameter model was launched in April 2026 running on Huawei Ascend processors. The regulator required listed companies and ETF managers to disclose AI-related revenue within 20 business days, and the market reaction subsided as firms complied with the new rules.

Policy measures, market structure and household exposure to property are factors referenced by market participants when discussing why equity valuations have not risen in step with economic output. Analysts and market participants continue to monitor property prices, local government debt and investor flows for signs of change.