The core drivers of this round of the A-share market rally are Supply-Side Reform 2.0 and policies aimed at combating internal competition. During the first wave of Supply-Side Reform 1.0 in 2015, demand was stimulated through the monetization of shantytown renovation, while prices were raised by eliminating outdated production capacity. By applying pressure on both the supply and demand sides simultaneously, many of the issues at the time were resolved. The current approach to Supply-Side Reform 2.0 is essentially the same: on the supply side, we continue to cut overcapacity and raise prices, while on the demand side, we rely on policies such as large-scale infrastructure projects and childbirth subsidies to boost domestic demand. Between 2024 and 2025, a wide range of measures—including debt swaps, local government bond arrangements, fiscal and monetary policies, consumption stimulus, and industrial regulation—were employed, but the results were generally lackluster. The public isn’t swayed by empty promises; they only trust tangible infrastructure stimulus—things they can see and touch. On one hand, no one is willing to believe in abstract policy concepts; on the other, the economic rhetoric from top leaders is too obscure—it’s so dry it could put you to sleep—so naturally, acceptance is low. If they could speak as bluntly as Trump, the effectiveness of policy communication might be much better.

Looking at the policy timeline, in November 2015, a “golden scissors gap” emerged between M1 and M2, followed by the launch of Supply-Side Reform 1.0, which sent the credit pulse soaring. The current situation is actually quite similar: the credit pulse has already begun to rise. Although M1 and M2 haven’t officially crossed paths yet, the trend is already clear—it’s also driven by supply-side reform and major infrastructure projects boosting the credit pulse, and the timing aligns perfectly. However, the two situations have completely different backdrops: last time, capital first drove up the stock and real estate markets, then cashed out and fled overseas; this time, we are proactively driving up the stock market, pushing valuations higher before foreign capital has even entered. If Northeast Asia and Southeast Asia can be stabilized in the future, and Taiwan is brought back under our control, the entire East Asian situation will be settled—at that point, foreign capital will have no choice but to buy Chinese assets at high prices.

No matter how you draw the trend line for the CSI 300—whether connecting the points of major declines or forming a contracting triangle—it’s clear that 2023 was supposed to see a rebound, with prices pulling back before rising again. Regular viewers of this channel know just how crucial 2023 was; I’ve said it countless times. When Silicon Valley Bank collapsed, if Yellen had cut interest rates to rescue the market, the economic pressure on our side would have been much lighter, and we might even have seen a rebound. Instead, Yellen didn’t cut rates at all. She first drained liquidity through overnight reverse repurchase agreements to ease pressure on bank reserves, then adjusted the bond issuance structure—issuing more short-term bonds and fewer long-term bonds—effectively dragging the problem all the way to the present. You’ve all seen that leading indicator for recession. If that spread had turned positive rapidly in 2023, an economic crisis would likely have erupted in early 2024 or 2025. Yellen’s maneuvers directly postponed that crisis.

Looking at PPI and CPI, after the previous “Supply-Side Reform 1.0,” the gap between the two narrowed significantly, and the COVID-19 pandemic also helped shrink that gap. Now that we’re implementing Supply-Side Reform 2.0, the goal is also to narrow this gap—in plain terms, to drive up producer prices. Let’s also talk about the relationship between stocks and bonds; the principle applies equally to both China and the U.S.: Take U.S. Treasury bonds, for example. If yields reach 5% and no one is buying, then the stock market will have to offer even higher returns to attract investors—meaning the market would need to rise by more than 62% over ten years just to be attractive.