China pushes slow bull run with tightened margin financing rules to fight overheating

China’s move to raise margin requirements for leveraged stock trading signalled regulators’ push to steer clear of boom-and-bust cycles, while strengthening the stock market’s role in funding the country’s tech self-sufficiency efforts, according to analysts.\n“The signal from regulators was crystal-clear: guide the market towards a stable transition to a slow bull run,” said Wang Jun, a strategist at BOC International in Shanghai.\n“Investors should reduce their leverage levels to guard against the risk of volatility from sentiment swings. The focus of the market will gradually return to fundamentals.”\nThe Shanghai, Shenzhen and Beijing stock exchanges said in separate statements on Wednesday that the margin requirements for leveraged stock buying would increase to 100 per cent from 80 per cent, effective on Monday, with the changes applied only to new contracts.\nThe tightened margin trading rules had an immediate impact by cooling market sentiment.\nOn Thursday, the Shanghai Composite Index slid 0.3 per cent, extending a decline of the same percentage a day earlier. Smaller technology stocks – the sector with most exposure to leveraged buying – fared worse. The index of the biggest 50 companies on Shanghai’s Nasdaq-style Star Market fell 0.5 per cent.\n“That showed regulators’ resolve to drive a slow bull run and counter overleveraged trading,” Morgan Stanley strategist Laura Wang wrote in a report on Wednesday. “As a result, we may see some near-term volatility especially in the tech and innovation-heavy sectors, where we’ve seen the most margin-financing growth.”\n\nUnder the new rules, an investor with 1 million yuan (US$143,414) of collateral can only buy an equivalent value of stocks on credit, down from 1.25 million yuan at present.\nThe revision aimed to reduce the leverage levels, protect the interests of investors and promote the market’s healthy, long-term development amid the increase in margin-trading activity and abundant liquidity, according to the statements of the country’s three exchanges.\nThis cooling measure marked regulators’ latest response to investors’ euphoric sentiment, as the nation’s US$14.2 trillion yuan-denominated stock market headed into 2026.\nChinese traders boosted their leveraged bets on stocks to a record 2.68 trillion yuan on Wednesday, as Beijing’s push for tech self-reliance and a low-interest-rate regime spurred a rotation to risk assets.\nThe outstanding balance topped a high of 2.27 trillion yuan set in June 2015, which preceded a stock rout that wiped US$5 trillion in market value.\nLeveraged buying played a key role in 2015’s stock market turmoil, which led the country’s securities regulator to crack down on over-the-counter margin trading.\nThe Shanghai Composite Index this week returned to a decade high, while the combined daily turnovers on the Shanghai and Shenzhen exchanges set a record of 3.9 trillion yuan. As a result, the outstanding value of margin trading reached well above the level that fuelled 2015’s raging bull market.\nMorgan Stanley’s Wang said the new margin financing rules’ impact on liquidity would be temporary and manageable, as the change would not apply to existing margin-trading contracts.\n\nShe added that the value of leveraged positions, as a percentage of the total free-float market capitalisation, was only about 5 per cent, roughly half the proportion compared to the run-up to the 2015 meltdown.\nLong-term liquidity would come from a rotation out of bond investments and banks’ term deposits, as well as buying from insurance firms, she said.\nSome corners of China’s stock market have shown signs of a bubble, following a strong start to 2026, with the technology boards trading at a premium to their US peers.\nShanghai’s Star Market, for example, is currently valued at 75.3 times earnings. The multiple for the ChiNext board of Shenzhen-listed tech start-ups was 53.4 times, which surpassed the 32.7 times multiple for the Nasdaq 100 index, according to Bloomberg data.\nChina’s stock market, which was designed to help finance the nation’s state-owned enterprises in the early days, was later tapped by policymakers to become a major source of funding for the country’s tech start-ups and help bolster consumption by creating household wealth.\nIn 2025, China reversed years of stock decline amid a flurry of market-bolstering measures, including financing support from the central bank.\nWhile there was consensus among analysts that the general upswing in the stock market could remain intact over the long term, investors would need to brace for wilder swings that resulted from an unwinding of leveraged bets in the near term.\n“The hike in margin requirements will trigger volatility in the high-value sectors,” said Cheng Qiang, an analyst at Tosperity Securities. “Investors need to remain alert to the change of sentiment, if more cooling measures follow.”\n