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The A50's Nine-Dragon Throne: Every Bull Market Has Someone Who Thinks Heaven Appointed Them
Author: The Fourth Wall of the Market
The SSE 50 debuted in January 2004, using the last trading day of 2003 as its base date and setting its starting point at 1,000. It selected fifty large, actively traded companies from the Shanghai market, attempting to take a group portrait of China's most influential listed enterprises.
This article follows market shorthand and calls this large-cap blue-chip world the “A50,” while using the SSE 50 as the historical reference line. The two are not identical under strict definitions. The SSE 50 contains only companies listed in Shanghai, while other similar indices may include Shenzhen companies. That distinction needs to be stated; it will not be belabored afterward.
I prefer to see the A50 as a nine-dragon throne placed in the main hall of China's capital market.
The throne is forged from market capitalization. When banks gain weight, it takes on the shape of credit expansion; when insurers occupy the strategic seats, the market begins measuring the future through long-term interest rates; when baijiu becomes a senior minister, cash flow acquires an almost moral halo. When foreign capital enters, valuation models adopt a different accent. Once state capital begins entering through broad-based funds, traders acquire one more subject to study: which prices are approaching levels that management can no longer pretend not to see.
Every force that takes the seat claims that its pricing method is closer to the truth. These claims usually have a factual basis. The market's most expensive mistakes rarely grow out of total fabrication. They usually grow from one true thing, amplified by money and then granted an unquestionable status by collective belief.
The A50 leaves that process inside its prices.
The peaks and troughs on a chart are clean. The people inside them do not share that clarity. Those standing at the top each carry their own reasons: some talk about reform, some watch credit, some trust foreign investors' judgment, and some wait for policy to act. Once prices fall, they discover that what they bought was not necessarily just corporate earnings, but also that era's imagination of what earnings could be.
The Nine-Dragon Throne has no true owner.
It recognizes only transactions.
I. Founding from the Wilderness: Reform Gives the Market Its Legitimacy
China's stock market in 2005 first had to solve a problem that was not valuation. How many shares of a listed company could actually be traded freely was itself an institutional dilemma.
Large quantities of state-owned shares and legal-person shares could not circulate. Holders of tradable shares bore the rise and fall of market prices, while holders of non-tradable shares controlled the companies. Both kinds of shareholders belonged to the same company, but their calculations of interest were not written on the same page. Corporate governance, takeover arrangements, and shareholder rights were all distorted by this wall, and market prices could not fully reflect the value of corporate ownership.
In April 2005, the China Securities Regulatory Commission launched pilot programs for the reform of the split-share structure. Shang Fulin, then chairman of the CSRC, regarded the reform as a last stand. After the pilot was announced, the market responded with a sharp decline and criticism quickly poured in. He did not retreat. He left behind a sentence that carried the unmistakable flavor of its time:
“Once the bow is drawn, there is no turning back.”
Read today, the sentence is easily understood as a reformer's boast. Put back into that moment, it sounded more like a military order.
Earlier experiments with reducing state-owned shares had already injured the market. When investors heard “full circulation,” their first thought was supply pressure. If large quantities of non-tradable shares flowed into the market, existing holdings would be diluted and prices could come under pressure. The reform was necessary at the institutional level, but inside an account it might first appear as a loss.
In June 2005, speaking as CSRC chairman, Shang Fulin explained that the reform needed to consider overall and long-term interests and to strike a balance among the demands of different parties. He distinguished between “compensation” and “consideration”: compensation dealt with problems left over from history, while consideration established the arrangements for shareholders in the future.
This was not an empty reassurance. The consideration mechanism required non-tradable shareholders to pay a price to obtain tradable status, while allowing holders of tradable shares to reject proposals they could not accept through a vote. Tsinghua Tongfang's first proposal was rejected by tradable shareholders, demonstrating that the reform was not merely discussing the balance of interests on paper. The votes in shareholders' hands acquired real bargaining power for the first time.
Legitimacy was formed right there.
The market gradually came to believe that a long-troubled institutional gap was being filled. Large state-owned banks completed restructuring and listings one after another, while industrialization and urbanization continued at high speed. The banks, energy companies, insurers, and large industrial enterprises in the A50 entered the market carrying the scale of national modernization, and their earnings growth was strong enough to make most doubts seem out of place.
The White-Clad Chancellor called “Fundamentals” entered the palace at this point.
He kept earnings, cash flow, and return on equity inside his sleeves, insisting that good companies should receive reasonable prices. In those years, the market supported this argument. After the lows of 2005, prices began to rise. By 2007, the Shanghai Composite Index had reached 6,124 points. The reform reduced the long-standing institutional discount, while economic growth and renminbi appreciation lifted expectations for corporate earnings. Household money kept entering the market, eventually turning a ceremony of institutional repair into a grand festival.
From then on, the A50 learned an imperial language: reform creates value.
The sentence itself was true. The problem was that the market could trade reform, and it could also spend reform in advance. Once the old wall of the split-share structure fell, the shares, earnings, and control rights of large companies entered the pricing system more completely. Companies had to face market testing, and related policies also began to receive price feedback.
Shang Fulin wanted to dismantle an institutional obstacle. Traders, amid the smoke, saw a new dynasty. Few people at a founding ceremony wanted to discuss valuation. The risk management common at the time was simply to believe that one had entered a little earlier than the last person.
The Nine-Dragon Throne was filled for the first time.
The old accounts beneath it had not yet surfaced.
II. Prosperity Inflates: The Credit General Takes Command of the Imperial Guards
In 2008, the global financial crisis devastated external demand, and China's exports and industrial production cooled rapidly. The policy system that had still been dealing with overheating and inflation at the start of the year turned toward rescuing growth by autumn. Lehman Brothers collapsed in September. The People's Bank of China soon lowered interest rates and the reserve requirement ratio, existing constraints on credit quotas were relaxed, and commercial banks began increasing loans to key projects.
In November of the same year, Wen Jiabao, then premier of the State Council, chaired an executive meeting of the State Council that introduced ten measures to expand domestic demand. The market later summarized the package as the “four trillion” stimulus. Funds flowed into affordable housing, railways, roads, rural construction, and post-disaster reconstruction, while the transformation of the value-added tax system proceeded at the same time. The message received by the financial system was clear: increase support for economic growth.
The Black-Armored State Preceptor called “Liquidity” put on his armor formally at this point.
He did not study brand stories, and he had little interest in corporate culture. He cared about banks' balance sheets, understood collateral valuation, and knew how a loan moved from a bank to a local government financing vehicle, then into construction companies, the land market, and the industrial chain.
At the deepest point of the crisis, he genuinely rendered meritorious service.
Loan disbursements brought local projects to life and supported demand for steel, cement, construction machinery, and energy. Once land prices rose, collateral values improved, and local governments could obtain investment funds from land revenues. Corporate earnings recovered, bank assets expanded, and the financial and cyclical weights in the A50 regained their momentum.
The trouble began there as well.
Demand created by credit entered corporate reports and looked very much like operating ability. Rising collateral values improved the apparent quality of banks' books, making banks more willing to lend. The A50 thought it was trading China's rise in those years. Later it realized that it was also trading something else: banks' willingness to write yesterday's collateral into tomorrow's revenue.
Zhou Xiaochuan, then governor of the People's Bank of China, saw the shadow behind the ledger very early. In July 2009, he publicly warned that some stimulus projects suffered from low efficiency and waste, and that in serious cases they could affect the ability to repay loans later. Speaking about local-government financing, he argued for establishing regulated formal channels.
He said:
“It would be better to open the front door than to make people go through the back door or jump out the window.”
The sentence identified the disease in the financing structure of that period. Local construction required enormous funds, formal channels had not yet been fully established, and bank credit and local financing vehicles became temporary substitutes. In a crisis, policy had little time to wait for institutions to mature slowly; there was a real need to hold up the economy first.
Once a temporary passage has been made to work, removing it is not easy.
At first, credit merely carried growth in a sedan chair. A few years later, it could decide where the sedan chair went. Real estate gradually became an important container for household wealth, land revenue supported local finances, and banks treated mortgages and development loans as high-quality assets. Insurers' asset allocation was likewise pulled by property and interest rates.
This machine left behind a great deal of infrastructure and drove the rapid expansion of cities. To write it off as a simple policy mistake would be too easy. When external demand collapsed, stabilizing employment and economic activity was genuinely necessary. The question is when the crisis arrangement lost its temporary character, and when the market began treating credit expansion as a permanent growth institution.
The White-Clad Chancellor still attended court every day, explaining earnings and asset quality as usual. The Black-Armored State Preceptor had already taken command of the armies. Bank credit, local financing, and property collateral gradually joined into a single system, and the corporate fundamentals acquired the color of the credit cycle.
Growth still sat on the throne, but the token for moving the troops was no longer in its hands.
III. The Leverage Coup: The Reform Bull Dies in Its Own Slogan
By 2014, China's economic growth had already slowed, and real estate had lost the one-way heat of its earlier years. The A-share market had been quiet for a long time, valuations were not high, and institutional positions were light. This was exactly the environment in which a story could germinate.
That story was called the reform bull.
Financial reform, state-owned-enterprise reform, and economic transformation were placed inside one narrative. In April 2014, Li Keqiang, then premier of the State Council, announced at the Boao Forum for Asia that conditions would be created to establish a trading link between the Shanghai and Hong Kong stock markets and to promote two-way opening of the capital market. In November that year, the Shanghai-Hong Kong Stock Connect officially began operating.
The palace gates really did open.
The market quickly interpreted openness as incremental capital and turned expectations of reform into a price trend. On-exchange margin financing balances rose, while off-exchange financing expanded through trusts, asset-management plans, and private platforms. Some bank wealth-management funds became the priority capital in structured products, brokerages provided channels, and financing companies sold leverage. Investors' repayment schedules ultimately relied on the bull market itself.
Nie Qingping, then chairman of China Securities Finance Corporation, later reviewed this period and identified highly leveraged off-exchange financing as a major cause of the abnormal market volatility of 2015. Money pushed prices higher, while forced liquidation made the decline self-accelerating. From June 12 to July 8, 2015, the Shanghai Composite Index fell by roughly 30 percent.
Leverage rewrote the market's sense of time.
The effects of reform that originally required years of verification were collected in advance through stock prices within a few months. Investors borrowed money to buy the country's future, but did not reserve room for volatility in that future. When prices rose, leverage wore the name of financial innovation. When liquidation arrived, it had only the face of a debtor.
The coup was absurd in a very concrete way. Brokerages believed they were improving the financing function, financing platforms claimed to be meeting market demand, and buyers believed they were sharing in the dividends of reform. Once forced liquidation appeared, all the grand narratives had to yield first to margin ratios.
In July 2015, securities regulators, Central Huijin, China Securities Finance Corporation, and other forces entered to stabilize the market. Funds bought heavyweight stocks and exchange-traded funds. Nie Qingping later said plainly that a liquidity crisis had already emerged and that rescuing the market had become the only choice.
The Empress Dowager Behind the Curtain, “the Policy Reaction Function,” now showed half her face.
She did not promise an upswing, nor did she compensate buyers at the top for their losses. What she wanted to stop was the continued contagion of forced liquidation, lest pressure move from the stock market into the balance sheets of funds, brokerages, and banks. From the standpoint of financial stability, the action had a clear rationale.
The version remembered by the market was much simpler.
If prices fell far enough, the court would bring water.
That memory later became an invisible asset in A50 valuations. Large banks, insurers, brokerages, and broad-based indices had relatively high liquidity and were also easier tools to use when stabilizing the market. Investors began to believe that some assets had a greater chance than others of being bought in an emergency, and therefore their tail risks needed to be reassessed.
The imagination of a policy floor was planted at that point.
Off-exchange financing was disciplined after the coup, and the language of financial innovation became more restrained. The White-Clad Chancellor was invited back to the main hall, and the market began talking about value again.
The Empress Dowager had already settled behind the curtain.
She would not need to speak every day. The market would infer her wishes on its own.
IV. Maternal Relatives Enter the Palace: Core Assets Hand the Price to Time
After 2017, A-share aesthetics began to change.
The Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects gradually expanded. In June 2017, an international index provider decided to include China's large-cap stocks in its global emerging-market index, with the change implemented in stages in 2018. The CSRC said at the time that the decision answered the needs of international investors and reflected foreign institutions' confidence in China's economic prospects and the soundness of its financial markets.
Foreign capital consequently acquired an authority greater than its position size.
Northbound trading was disclosed every day, and inflows were often interpreted as a certification of quality. Foreign institutions favored large companies with clear governance, stable earnings, and ample cash flow. The market gradually became familiar with the language of core assets, leader premiums, and long-term compounding.
This shift had a reasonable background. The leveraged bull market of 2015 had left a brutal memory. Investors studied corporate competitiveness again and were willing to pay a premium for stable earnings. Liquor, home appliances, pharmaceuticals, insurance, and some banks gradually became the new aristocracy. The time horizon of market discussions lengthened, and whether a company would still be competitive ten years later became an important part of valuation.
The problem was hidden inside that distant future.
Falling interest rates raised the present value of distant cash flows, while foreign capital continued buying the same group of leaders. Public funds facing ranking pressure also found it difficult to avoid the market's acknowledged core list for long. Rising prices improved portfolio performance, and excellent companies therefore received higher valuations. Once the cycle ran long enough, the stock price itself became part of the proof of quality.
In January 2019, Yi Huiman became chairman of the CSRC. During his tenure, the STAR Market, the registration-based IPO system, and the opening of the capital market were advanced, and institutionalization of the market continued to deepen. Regulators emphasized improving the quality of listed companies. At the trading level, however, a simpler belief took shape: buy the best companies, and let time deal with the price.
Time never agreed to take that job.
From 2020 through 2021, the core-asset trade reached its height. Long-termism gradually began to defend high valuations. As long as a company was good enough, the price paid to buy it seemed not worth worrying about. Distant growth was discounted in advance, and current earnings became less and less important in the model.
Foreign capital initially brought valuation discipline. The market later turned its preferences into a complete set of court etiquette. Which liquor a fund should hold, which bank an insurer should allocate to, and how the terminal value should be written all began to converge. Research reports grew thicker, while portfolios grew more alike.
Speculation had not disappeared. It had simply learned to talk about moats.
The buyers of 2015 used financing to bet on reform. Fund holders in 2020 used a very low discount rate to buy certainty. The leveraged customer's risk was written on the liquidation line; the core asset's risk was hidden in valuation. Once prices began to fall, the latter discovered as well that their investment horizon was not as spacious as they had imagined.
The A50 was reshaped by this aesthetic too. It had originally carried a heavy color of banks, energy, and industry. Consumer leaders and insurance giants increased the duration of the index. The market slowly moved away from current earnings and gave more weight to brands and cash flows many years in the future.
The person who took the Nine-Dragon Throne in this round did not have to prove that growth would remain fast forever.
He only had to make the market forget that good companies have prices too.
V. The Real-Estate Crown Prince Falls from Favor: The Treasury Is Stacked with Collateral
The hardest person for a dynasty to deal with is often a former hero.
Real estate had long supported household wealth, and it also affected local land revenues, bank collateral, and a vast construction chain. It gave urbanization a physical form, while credit expansion found in it a destination large enough to absorb the funds. When property was prosperous, the banks, insurers, construction companies, home-appliance makers, and consumer businesses in the A50 could all benefit.
After 2021, this relationship began to turn back on itself.
Property developers faced tighter liquidity, residential sales came under pressure, and the land market cooled. The stable expectation that housing was a household asset was rewritten. Bank valuations were already very low, yet the market still had to judge the true quality of the assets on their books. Insurers held large quantities of long-duration assets, and falling interest rates increased reinvestment pressure. Consumer leaders retained their brand advantages, but households no longer felt as wealthy as before.
Only then did the market see clearly that real estate might not occupy the center of the A50's constituent stocks forever, but it had always lived beside the balance sheets of many constituents.
In December 2023, Pan Gongsheng, Party Secretary and Governor of the People's Bank of China, wrote that the country should actively adapt to the major transformation in the real-estate market, reduce real-estate risks, prevent risk spillovers, reasonably meet the financing needs of property developers under different ownership structures, and provide medium- and long-term low-cost funding for projects such as affordable housing.
That wording had already given real estate a new identity.
Policy emphasis was placed on project construction, reasonable financing, and risk isolation, with the aim of forming a new development model. If every real-estate financing policy is still understood as a preparation for housing prices to return to a one-way rise, it is like using an old map to look for a city being demolished.
In October 2024, speaking as governor of the People's Bank of China about the state of the economy, Pan Gongsheng said that the real-estate market and the capital market contained relatively prominent contradictions that required targeted policies. He also described the adjustment of existing mortgage rates, estimating that it would benefit roughly 50 million households and reduce interest expenses by about 150 billion yuan a year.
This policy could reduce households' mortgage burdens and increase some disposable cash flow. Long-term household confidence in housing prices cannot be created by a single interest-rate adjustment.
The A50's financial weights consequently entered an awkward period. Banks' low valuations offered some protection, but they also contained the market's doubts about asset quality, net interest margins, and credit demand. The long-term value of insurers depended on returns on the asset side, and falling long-term rates changed that calculation. Consumer stocks waited for household confidence to recover, but that recovery had no definite date that could be written into a model.
The White-Clad Chancellor looked tired.
He could still calculate earnings and dividends, but he could no longer strip macro credit out of corporate reports. The Black-Armored State Preceptor still had liquidity in his hands, but private-sector willingness to borrow had weakened. After the Real-Estate Crown Prince left the main hall, collateral, local revenues, and bank assets remained where they were, waiting for a long inventory.
The market had to calculate depreciation for the entire era of credit.
That depreciation was occurring every day. Bank stocks recorded part of it in their price-to-book ratios. Insurers' sensitivity to long-term rates recorded another part. Slower revenue growth at consumer companies recorded another.
There would be no single settlement date for this account.
VI. The Regency: The Market Starts Calculating Who Cannot Be Allowed to Fall
In October 2023, Central Huijin announced that it had bought exchange-traded funds and would continue increasing its holdings. In February 2024, Central Huijin announced again that it would expand the scope, intensity, and scale of its purchases.
Broad-based indices turned from investment tools into conduits for injecting water into a market that needed stabilizing.
The A50 was especially sensitive to such arrangements. Its constituents had large market capitalizations and active trading, concentrated in banks, insurers, energy, consumer companies, and central state-owned enterprises. By entering through broad-based funds, capital could quickly cover multiple heavyweight stocks while avoiding the dispute of selecting companies one by one.
In February 2024, Wu Qing became chairman of the CSRC. The regulatory approach thereafter gradually converged around market stability, regulatory discipline, and increasing the investment value of listed companies. In April that year, the State Council issued a new guiding document for the capital market, and regulators introduced supporting measures one after another. Wu Qing later explained, in his capacity as CSRC chairman, that stability was the bottom line; policy formulation also had to consider its impact on the secondary market and strengthen the stability and predictability of the system.
The Empress Dowager Behind the Curtain was no longer hiding entirely behind the curtain.
She had not promised a particular index level, but the tools in her hands had become more complete. Central Huijin continued to increase its holdings. Securities, fund, and insurance companies obtained a swap facility. Special relending supported listed-company buybacks and major-shareholder increases. Institutions for bringing medium- and long-term funds into the market also began to advance.
In October 2024, Pan Gongsheng said that the two financial instruments supporting the capital market represented a new exploration of the central bank's function of maintaining financial stability. They would be improved gradually in practice together with the CSRC, while permanent institutional arrangements would be studied.
The policy floor was gradually moving from temporary firefighting toward a permanent fire station.
What traders needed to understand also changed. Corporate earnings remained important, but policy sensitivity to different kinds of declines affected prices as well. If a particular decline began to damage the market's financing function or threaten the balance sheets of financial institutions, the policy response would usually accelerate. Highly liquid heavyweight stocks and broad-based indices were also more suitable as operational tools.
The market therefore acquired another layer of identification. The value of a large bank included not only its dividends, but also its place in the financial system. A central state-owned enterprise not only supplied cash flow, but was also expected to improve investor returns. A broad-based index was responsible for reflecting the market and, when necessary, could become the interface for stabilizing it.
In December 2024, the State-owned Assets Supervision and Administration Commission of the State Council issued opinions on market-value management for listed companies controlled by central state-owned enterprises. The opinions called for more stable and predictable cash dividends, regular buyback and share-increase mechanisms, and action on the long-standing problem of companies trading below net asset value. They also included market-value management in the performance evaluations of central-enterprise leaders. The head of SASAC's Bureau of Property Rights Management said that raising the investment value of listed companies and strengthening investor returns would become a long-term task.
High dividends thereby acquired a clearer institutional background.
Returning cash to shareholders had always been ordinary capital allocation. In an environment of falling interest rates and slower growth, stable dividends offered a return that was easier to calculate. Once SASAC placed dividends, buybacks, and market-value management inside performance evaluations, these assets also acquired another layer of policy meaning.
Policy meaning enters prices quickly. The market has always worked that way.
A company increasing dividends can indeed help raise its investment value. Dividend yield still has to withstand tests of earnings capacity and capital expenditure. If all capital chases stable cash flow at the same time, high-dividend assets will become crowded as well. Market-value management can improve communication between companies and investors, but it can never replace operations.
In 2025, Wu Qing called for keeping stability as the priority and consolidating the market's recovery and improving trend. He also called for improving the quality of listed companies, promoting the entry of medium- and long-term capital, and strengthening the fight against financial fraud. Regulators had placed market stability and investment value inside the same institutional framework.
Stability therefore acquired a price.
Public funds can interrupt a liquidity stampede, but companies must still produce their own earnings. Buybacks and share increases can add buyers, but product competitiveness does not naturally improve because of a loan. Medium- and long-term funds can reduce market fragility, but long-term returns still require a reasonable purchase price.
A mature trader who sees Central Huijin increasing its holdings does not immediately translate it into a bull market. First, he judges which link in the chain policy is repairing. When liquidity is insufficient, broad-based tools can stabilize trading. When corporate demand is weak, index buying mainly improves valuation and sentiment. While household balance sheets are still being repaired, a rebound in share prices will not immediately become consumer spending.
The easiest mistake in a regency is to interpret “disorderly declines will not be allowed” as “prices must continue rising.”
The Empress Dowager is protecting order.
Those who buy at the top still have to deal with their own costs.
Conclusion: Every Emperor Leaves a Balance Sheet Behind
It is too convenient to write the A50's history as a series of bull and bear markets.
In 2005, institutional reform gained the power to set prices. After 2008, credit expansion took control of the market. Leverage launched a palace coup in 2015 and ultimately died on the liquidation line. Foreign capital and core assets then reshaped the market's aesthetic. The decline of real estate forced the entire credit system to inventory its collateral. In recent years, the policy reaction function has gradually become institutionalized, and the Nine-Dragon Throne has entered a regency.
The White-Clad Chancellor, “Fundamentals,” never truly left.
After a bubble bursts, the market always invites him back to recalculate cash flow and dividends. When the market heats up, he is criticized for speaking too slowly. His judgments often require time, while the market has the least patience of all.
The Black-Armored State Preceptor, “Liquidity,” has also remained in the palace.
His identity changes with the era. In the early years he was bank credit. Later he hid inside off-exchange leverage, and he once wore the robes of northbound funds and passive funds. Today he can also emerge through swap facilities, buyback relending, and broad-based funds.
The Empress Dowager Behind the Curtain is harder to read.
In normal periods, she lets prices fluctuate on their own. When market disorder begins to threaten financing functions and financial institutions, she adjusts her tools. This reaction reduces some tail risks, but it also teaches traders to divine the policy floor.
The A50 has therefore acquired a secret chamber.
Those who study companies calculate what it is worth. Those who study policy estimate how far it can fall before someone acts. Both methods are useful, and both can mistake luck for ability.
The A50 has no fixed cheapness or expensiveness. High dividends need earnings to support them, and state capital entering the market is not a guarantee of rising prices. Foreign capital leaving only shows that its risk budget and judgment have changed. Foreign capital returning likewise does not take responsibility for the purchase price. A policy floor can change the distribution of risk; long-term returns must ultimately be earned through corporate operations.
Someone is always sitting on the Nine-Dragon Throne.
Every new ruler takes the throne believing that he has found the final method of pricing. When he leaves, the hall always contains old debts, collateral, or a batch of distant cash flows still waiting to be realized.
The market opens as usual. Analysts update earnings forecasts, fund managers adjust portfolios, and traders try to read policy. The A50 collects all those judgments into a single price.
The Nine-Dragon Throne does not listen to accession proclamations.
It waits for the next person who believes heaven appointed him.
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