Record borrowing fuels Chinese equity rally as crypto holds back

Chinese investors are borrowing record sums to buy local equities, signaling a renewed appetite for risk across global markets. Yet, crypto traders are in a “wait-and-see” state, even as leverage in mainland China’s stock exchanges climbs to levels not seen since 2015.

According to Bloomberg, margin trades outstanding in China’s onshore equity market rose to 2.28 trillion yuan ($320 billion) on Monday. The figure surpassed the previous peak of 2.27 trillion yuan set during the equity frenzy of 2015.

Margin trading, which allows investors to borrow from brokers to buy securities, is used in stock markets as a gauge of confidence and risk appetite. 

Chinese market gains buoyed by liquidity tailwinds

Per data from Trading Economics, the CSI 300 Index gained 10% in August, its strongest monthly advance since September 2023 when a government-led policy push briefly boosted equities. The performance also made it one of the top global benchmarks last month.

The Shanghai Composite Index has gone up by 15% this year, outpacing the S&P 500’s roughly 10% advance, while the CSI 300 has added 14%. Bloomberg economists believe the uptick has been caused by low interest rates, subdued bond yields and a lack of attractive investment alternatives inside China.

Market run visible, but crypto traders treading cautiously

The uptrend in equity leverage has not yet translated into aggressive behavior in cryptocurrency markets. Traders often use perpetual funding rates as a proxy for demand for leverage, since the industry does not have a concise standard measure of margin debt.

Currently, funding rates for the top 25 cryptocurrencies range between 5% and 10%, which means there is a moderate bullish sentiment. Meanwhile, the crypto fear and greed index is flashing neutral at 49, and market participants are seemingly avoiding the excesses seen in equities.

Seasonal factors may also be tempering the enthusiasm of a stock market bullish run seen in Asian markets. Data from CoinGlass shows Bitcoin has declined in eight of the last 12 Septembers. 

Will there be an economic backdrop?

Some analysts warn that conditions today differ from those during the last margin debt surge. Research platform MacroMicro noted that the new record is against the backdrop of a sluggish economic growth, in contrast with 2015 when GDP expansion was more profound.

“CSI 300 at decade highs. Borrowed money chasing stocks in a shrinking economy,” the firm posted on X, adding that this rally appears more measured, with participation beyond technology and chips, supported by a large deposit base.

China’s rally has unfolded against easing trade tensions with the United States, which have calmed investor sentiment. But to some economists, limited investment options at home have forced the hand of households and institutions to buy more equities.

“For households and institutions in China, they don’t have too much choice,” said Shujin Chen, China economist at Jefferies. “A-shares have joined the global party.”

Renminbi appreciation against USD ‘sending signals’

According to the Financial Times, the Chinese currency, the renminbi, has accelerated upwards by 2.3% to Rmb7.14 per dollar in 2025. The move follows several years of weakness against the greenback.

Mitul Kotecha, head of foreign exchange and markets strategy at Barclays, said the appreciation may carry diplomatic weight. “It’s sending a signal to the US,” he said. “China wants to, at least in a good faith way, show they’re not about to devalue the currency.”

However, compared to other major currencies, the renminbi’s performance has lagged behind. The euro has gained 13.2% and the yen 6.2% against the dollar this year.

“It seems very likely that [US officials] have discussed this issue and encouraged countries to allow their currencies to appreciate,” Andrew Tilton, chief Asia-Pacific economist at Goldman Sachs, told FT.

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