Why Is China's Stock Market Falling? The 12-Week Fall Explained, and What It Means for India

How bad is the fall in Chinese stocks?

The CSI 300—tracking the 300 largest companies listed in Shanghai and Shenzhen—has closed lower for 12 consecutive weeks to 30 October 2026. This is the longest losing streak since the index launched in 2005.

The index is down 21% from its 22 June peak, crossing into bear market territory, Reuters reported. Its 8.5% drop in October marked its steepest monthly loss in over a decade, according to Reuters.

12 red weeks for China, 8 for India

A record fall does not by itself make shares cheap. The CSI 300's trailing price-to-earnings ratio, 12.7 on 29 October, is close to its own average since 2011. And over the long run, even with dividends reinvested, the index is back near where it stood at its October 2007 peak.

The CSI 300 plays a similar role for China as the Nifty 500 does for India: a broad gauge of the big companies listed at home.

Did every Chinese index fall the same way?

No. Chinese stocks are listed in several markets, and they have not fallen by the same amount.

The record losing streak belongs to the mainland market. Tencent and Alibaba, the names most familiar to Indian investors, are absent from the CSI 300. They are listed in Hong Kong and feature in the MSCI China, where together they account for nearly a quarter of the index.

Why is China's stock market falling? Three pressures

There is no single catalyst. A new tax, a sharp technology sell-off, and reduced earnings forecasts converged within a few months.

1. China's tax on offshore trusts

CSI 300 in 2026 and the offshore-trust tax

For years, many founders of Chinese companies listed in Hong Kong and New York held their equity through offshore family trusts.

On 24 July 2026, China issued Announcement No. 21. It requires Chinese tax residents to pay tax on the gain made when shares were moved into an offshore trust, and on the income those trusts earn. China's personal income tax rate on such gains is 20%.

The complication lies in the calculation: the gain is based on the share value on the transfer date, minus the founder's acquisition cost. Current market prices are irrelevant.

Taxpayers had a 90-day window to settle past liabilities without late fees. That window closed on 22 October 2026.

Some families had to raise cash. Reuters ran the headline on 16 October: "China's super-rich scramble to exit offshore trusts, raise cash as taxman knocks". In September, a family trust tied to Haidilao's founder sold roughly US$350 million in shares, sinking the stock, according to Bloomberg. Bloomberg also reported on 19 October that eight Chinese billionaires could fall under this broader tax net.

The CSI 300 was already 8% below its June peak when the notice came, and fell a further 14% afterwards, straight through the deadline.

Not everyone sees the tax as the main cause. Most affected founders listed their companies in Hong Kong or New York, outside the CSI 300. BofA's China equity strategist Winni Wu said the tax was unlikely to be a dominant driver for the Hong Kong market, Reuters reported on 22 September. It serves as one pressure point among several.

2. Technology stocks have been hit hard

China's tech-heavy STAR 50 index surged roughly 75% between April and June, only to drop nearly 40% by 17 October, Bloomberg reported. By 30 October it was about 47% below its 30 June closing peak.

AI-related stocks carry enough weight to move the broader market. Goldman Sachs estimated in October that AI-related stocks represent 42% of the market capitalization and 57% of trading volume across China's A-shares and Hong Kong's H-shares, Reuters reported.

Chinese equities bore the brunt of a stumbling global AI trade, Bloomberg reported. Foreign investors withdrew an estimated CNY 90 billion from mainland Chinese shares via the Stock Connect link between July and September. This marked the heaviest outflow in a year, according to Bloomberg.

3. Profit forecasts have been cut

Consensus 2026 earnings forecasts for MSCI China constituents have fallen by more than 4% since the end of March, Bloomberg data indicate. For the Hang Seng Tech index, which Bloomberg describes as dominated by internet firms mired in e-commerce price wars, the cut exceeds 13%.

Price wars are one reason analysts give. "Competition is encouraged and generally brutal in China, not shareholder friendly," Jason Lemire of Bold Wealth Partners told Bloomberg.

Official data look better, but the gains are narrow. Profits at China's larger industrial firms rose 15.5% in January to September, the National Bureau of Statistics said on 27 October, mostly in electronics, on demand for AI chips, and in raw materials. "Outside these segments, the broader corporate sector continued to struggle," Eric Zhu, an analyst quoted by Bloomberg, said, pointing to weak demand at home and intense price competition.

Is the Chinese government buying stocks?

Analysts and media reports suggest they are. Exchange data reveal significant buying of index ETFs starting mid-October, which analysts attribute to state-linked funds. No official body has confirmed the October interventions.

Analysts estimated state-linked funds put up to CNY 170 billion into the market during October, the South China Morning Post reported.

Yet the market continued to slide. "We see limited motivation for a prolonged intervention campaign," Patrick Pan of Bank of America told the South China Morning Post on 28 October, noting that China is not the only market hit by the global AI sell-off.

China's onshore markets have historically tended to bottom one to two months after state buying and pledges from top regulators to stabilise stocks, Morgan Stanley said, the South China Morning Post reported on 27 October. The same report said offshore-listed Chinese stocks could fall a further 10% to 15% before bottoming. That is the bank's view, not ours.

Will Beijing stimulate before the 2027 Party Congress?

So far Beijing has taken smaller steps than in 2024, and nobody knows whether more is coming.

Update, 2 November: Chinese media reported that the People's Bank of China and the banking and securities regulators would meet major banks, and separately some securities firms and fund managers, on 2 November to discuss improving the CNY 300 billion facility that lends money for share buybacks. No outcome had been announced at the time of writing. The CSI 300 rose about 0.8% that day, index data feeds show. China's NPC Standing Committee meets from 2 to 6 November; its published agenda has no budget item.

The precedent exists. On 24 September 2024, the People's Bank of China announced cuts to interest rates and set up a CNY 500 billion facility for brokers, funds, and insurers to purchase equities, plus up to CNY 300 billion of loans for share buybacks. The CSI 300 rallied 32.5% between 23 September and 8 October 2024, then gave back part of that gain in the following weeks. Past performance does not indicate future returns.

Recent actions have been more restrained. Policymakers "opted for incremental measures rather than the substantial packages seen in 2024", RBC Wealth Management noted, as reported by Reuters. Stronger-than-expected growth in July to September further reduced expectations of more policy support, Reuters reported on 22 October.

The next major milestone is political. The Communist Party leadership convened in late October, setting the 21st National Party Congress for the second half of 2027. Whether a 2024-style package materializes before then is the open question. We make no forecast.

Does China's fall affect India? The Nifty fell 8 weeks in a row too

India's Nifty 50 also fell eight weeks in a row, from mid-August to 1 October 2026, its longest weekly losing streak since 2001.

Notably, the losing streaks in China and India started in the exact same week. India's streak ended after the week to 1 October; China's was still unbroken at the 30 October close.

India's drawdown was protracted but shallow. The Nifty 50 shed approximately 9% over its eight-week run. China's 12-week run cost it 15%, compounding losses already accumulated since June.

India has lost foreign money too. Foreign investors sold a net ₹2.95 lakh crore of Indian equities in 2026 through 30 October, according to NSDL data. This is the highest calendar-year outflow since NSDL records began in 2002. How that selling has played out at home is covered in our pieces on India's growing economy and sliding markets and how polarised India's stock market has become.

Regional performance data groups the two markets together. "Together with Indonesia and India, stocks in China have emerged as the worst performers in the region this year," CNN's John Liu wrote on 30 October.

We read it this way: the AI build-out has become the strongest magnet for capital in the financial system, pulling money towards a handful of companies, and divergence this stark tends to come with a technology transition.