Overview of Mainland China's stock market investment: How can Taiwanese people seize this opportunity

Why Focus on the Mainland Stock Market Now

Over the past year, the performance of the mainland stock market has been a remarkable turnaround. Once considered “lacking appeal” by most investors, China’s capital market has entered a clear upward transition since September 2024. As of October 24, 2025, the Shanghai Composite Index has surged to 3950 points, hitting a ten-year high, with an increase of nearly 50% from last September’s lows. This rebound reflects a reassessment by international institutions of China’s long-term investment value.

Core Composition of the Mainland Stock Market

To find opportunities in the mainland stock market, one must first understand its basic structure.

Five Major Index Systems

The mainland stock market covers several key indices, with investors typically focusing on five: the Shanghai Composite Index as the most representative long-term indicator, although it has no direct trading instrument but best reflects overall market sentiment; the four tradable indices are the CSI 300, CSI 500, CSI 1000, and SSE 50. Each has its focus—SSE 50 targets large-cap blue chips, CSI 1000 focuses on small-cap companies, CSI 300, composed of high-quality constituents, is most popular among institutional investors and is a primary reference for overseas capital deploying A-shares.

Industry Structure and Market Characteristics

The market capitalization distribution in mainland China shows distinct features. By industry, financial companies (especially banks) have the highest market value at 15.87 trillion RMB, followed by electronics (14.24 trillion), non-bank financials (8.02 trillion), and power equipment (7.93 trillion). Pharmaceuticals, biotech, communications, and machinery manufacturing also hold significant positions. This structure indicates that the mainland stock market is highly correlated with financial policies and manufacturing sector prosperity, requiring investors to closely monitor macroeconomic conditions.

As of October 2025, industry performance varies. Electronics saw the sharpest gains (+50.59%), power equipment also performed well (+39.15%), but food and beverages declined by 5.30%, and petroleum and petrochemicals saw almost no gains (+1.40%).

Three Major Forces Driving the Mainland Stock Market

To forecast the future, it’s essential to understand what is driving this wave of market movement.

Liquidity Factors

This is the most direct and sensitive short-term driver. Central bank monetary policy, credit issuance scale, and financing costs can have immediate impacts on the stock market. Loose policies often trigger a bull market, while tightening tends to end the rally.

Policy and Institutional Reforms

China’s stock market exhibits clear “policy-driven” characteristics. Major favorable policies, industry support, and institutional innovations (such as registration system reforms) can spark investment enthusiasm. The series of supportive measures announced during the central bank joint press conference last September was a key catalyst for this rebound.

Fundamental Improvement

The healthiest bull markets are supported by corporate profit growth. When macroeconomic conditions improve and corporate profits generally rise, the stock market can gain genuine upward momentum.

How International Institutions View the Mainland Stock Market

Latest research from international investment banks like Goldman Sachs, JPMorgan Chase, and UBS indicates that China’s stock market is entering a more stable upward phase. Goldman Sachs forecasts a 30% increase in major indices by the end of 2027; JPMorgan Chase is optimistic about the medium-term performance of the CSI 300.

These optimistic forecasts are based on three reasons: first, the benefits of AI technology and capital expenditure are gradually manifesting, reshaping corporate profit models; second, government policies to “counter internal competition” create new growth space for companies; third, China’s manufacturing competitiveness remains strong. These factors collectively push the earnings per share growth rate to around 12%.

Valuation recovery is also a key point. Currently, China’s stock market is relatively undervalued compared to global markets, with the MSCI China index’s forward P/E ratio at 12.8x, significantly below the US S&P 500’s 22x, leaving room for a rebound.

However, it’s important to note that the current gains are more driven by valuation expansion than fundamental improvement. FactSet’s earnings forecasts for Chinese indices in 2025 and 2026 are still being revised downward, implying that if current gains lack earnings support, the market faces correction risks.

Long-term Evolution Patterns of the Mainland Stock Market

Since its establishment in 1990, the mainland stock market has experienced typical “short bull, long bear, explosive surge and crash” cycles, contrasting with the “long-term slow bull” pattern of Western markets.

Post-2010, the mainland stock market can be divided into four phases: 2010-2014, marked by prolonged stagnation, with the aftermath of the 4 trillion stimulus and overcapacity leading to inflationary pressures; 2015-2016, triggered by deleveraging and liquidity crises, with “10,000 stocks hitting limit down”; from 2022 to September 2024, due to lower-than-expected economic recovery, market confidence was weak; since September 2024, a new wave of rebound has begun.

Historical trajectories clearly show that the mainland stock market cycles around three core factors: liquidity, policy reforms, and fundamental strength.

How Taiwanese Investors Can Enter

Taiwan investors participate in the mainland stock market mainly through two channels: via domestic securities firms’ CIBM (Cross-border Interbank Market) services or through overseas brokerage accounts. Each method has advantages and disadvantages; considerations include ease of fund transfer, product variety, platform smoothness, and customer support.

Additionally, many high-quality mainland companies choose to list in Hong Kong or the US, providing alternative options for Taiwanese investors. Companies like Tencent and Alibaba are listed overseas, and participation can be achieved through legitimate international investment platforms.

Stocks with Allocation Value

Based on market capitalization, industry prospects, and profitability, the following types of companies are worth attention:

Technology Sector—Cambricon leads in AI chip design, with scarce technological advantages, a market cap of 64.3 billion RMB, and an ROE of 25.21%, representing investment opportunities in the AI era.

New Energy Industry—Contemporary Amperex Technology (CATL), as a global leader in power batteries, with a market cap of 1.78 trillion RMB and ROE of 17.76%, benefits from the global energy transition trend with strong growth prospects.

Stable Financial Stocks—Ningbo Bank, with a market cap of 183.3 billion RMB, leverages unique governance and talent advantages, focusing on high-net-worth clients in specific regions, providing stable returns.

Innovative Pharmaceutical Stocks—Hengrui Medicine, with continuous R&D capabilities, a market cap of 435.9 billion RMB, and an ROE of 9.42%, holds irreplaceable value amid China’s pharmaceutical upgrade wave.

Cash Flow Income Stocks—China Mobile, with a market cap of 1.58 trillion RMB, benefits from market monopoly, offering stable cash flow and high dividends for shareholders.

Key Points for Investment

The long-term allocation value of the mainland stock market is increasing, driven by corporate profit improvements and valuation recovery. However, risks exist—if macroeconomic recovery falls short of expectations and corporate profits cannot support current valuations, the market may face correction.

Taiwan investors should thoroughly understand market structure, monitor policy trends, and keep an eye on liquidity changes, seeking a balance between valuation and fundamentals. Given the significant gains in this rebound, cautious stock selection and phased deployment are advisable.