China's Stocks Soar Despite Economic Woes, Raising Bubble Fears

As of August 24th, 2025, China's stock market has been on a remarkable bull run, even as the country's economy faces significant challenges. Over the past month, onshore stocks have added nearly $1 trillion to their market value, with the Shanghai Composite Index reaching a decade-high and the CSI 300 Index advancing more than 20% from this year's low.

However, this surge in stock prices is occurring against a backdrop of economic distress. China's economy is currently buckling under the weight of tariffs and a deep-rooted property crisis. Recent economic indicators, from consumption trends to home prices and inflation, have raised red flags for investors.

The rally has been driven by cash-rich investors shifting into stocks amid a lack of alternatives. While the market's steady advance may suggest less risk of a sudden correction, some analysts are warning that a bubble is in the making. Nomura Holdings Inc. has cautioned against "irrational exuberance," while TS Lombard has described the mismatch as a stand-off between "market bulls and macro bears."

The troubling economic picture, including a deflationary spiral that has eroded corporate pricing power, has fueled expectations that Beijing will step up support. However, the policy rollout so far suggests officials are steering away from large-scale stimulus, instead preferring a measured approach.

As China's stocks continue to defy the country's economic woes, analysts are closely watching for signs of a potential bubble. The situation is reminiscent of the 2015 boom-bust cycle, when a surge in margin trading sent stocks soaring before a clampdown on such leveraged activities triggered an epic crash.