Emerging Capitalism in China’s Stock Market

By Jiaxing Li and Ankur Banerjee

HONG KONG/SINGAPORE (Reuters) – New shades of capitalism are emerging in China’s stock market as companies, at Beijing’s behest, buy back their shares and pay record dividends to investors awaiting a market rebound that has been so far evasive.

Investors note that this record spree of buybacks and dividend payouts signifies a cultural shift, focusing on shareholder returns similar to the corporate governance transformation in Japan. The dividend yield on Chinese stocks has now risen to about 3%, the highest since 2016, providing rewards for investors enduring a stagnant market.

“China’s regulators and policymakers are trying to engineer this culture of shareholder return,” said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas. “If that can be successfully engineered, it will change the makeup of the capital market; we’ve seen early signs of heightened shareholder returns.”

These buybacks and dividends were initiated as part of proposals by Chinese authorities in September to boost stock prices and consumer sentiment. Meanwhile, the benchmark CSI 300 index has struggled, declining over 27% since 2021, compared to a 65% rise for the S&P 500. The stagnation of Chinese stocks at around $11 trillion market value continues.

Lingering concerns about property sector debt, deflation, limited stimulus, and geopolitical tensions have dampened sentiment, prompting a foreign investment exodus, compounded by the threat of tariffs from Trump.

Despite Beijing’s attempts to stimulate the market in September, stock prices have recently lost momentum. The CSI300 index soared 40% in the two weeks following stimulus announcements but has since halved those gains due to disappointment regarding implementation speeds.

“You should be paid enough of a dividend to endure potential valuation pain,” noted Bhaskar Laxminarayan, chief investment officer for Asia at Julius Baer. “If not, it’s not worth it.”

Big Data

Chinese firms distributed a record 2.4 trillion yuan ($329.7 billion) in dividends in 2024, with buybacks hitting a record 147.6 billion yuan last year, according to regulatory data. Wu Qing, head of the China Securities Regulatory Commission, recently stated that over 310 companies are expected to pay dividends amounting to over 340 billion yuan in December and January—a nine-fold increase in companies and a 7.6-fold increase in amounts compared to last year.

As the market matures, shareholder returns are increasingly becoming a differentiator. Notably, investors poured nearly $8 billion into dividend-themed ETFs since 2020, versus just $273 million in the prior five years. The CSI Dividend Index, featuring traditional energy, financial, and material firms with high dividends, has risen 20% over the past five years, while the blue-chip CSI300 index has dropped about 8%.

Cultural Shift

Policy measures such as a 300 billion yuan share buyback financing program and guidelines urging mainland companies to enhance shareholder returns and valuations have focused attention on firms with higher yields. As Nicholas Chui, China portfolio manager at Franklin Templeton noted, “China was not previously seen as a dividend-yielding asset class but now presents both growth and yield in a sweet spot.”

Rising dividends deter income-seeking mainland investors from favoring bonds as the yield has surpassed the 1.7% available on 10-year governmental bonds. Following announcements of buybacks or dividends, shares of battery maker Contemporary Amperex Technology and e-commerce giant Tencent rose.

Goldman Sachs anticipates that Chinese companies will return a total of 3.5 trillion yuan to shareholders by 2025, up over 17%. Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC, emphasized, “Companies returning cash to shareholders mark a significant mindset shift. Ten years ago, this would have been unexpected.”

($1 = 7.2798 Chinese yuan)