How can Taiwanese people buy Chinese stocks? A complete guide to investment pathways and strategies

As the second-largest stock market in the world, China's mainland markets are attracting increasing attention from Taiwanese investors. However, many are unaware of how to buy Chinese stocks or how to choose suitable investment channels. This article will outline the complete purchasing process, market characteristics, and investment strategies to help you grasp the opportunities and risks within this vast market.

Why Invest in Mainland China Stocks? Understanding Market Composition and Core Indices

Since its establishment in 1990, China's stock market has grown rapidly to become one of the world's most important emerging markets. Currently, the Chinese government is actively guiding more funds into the market, aiming to create a global wealth reserve platform similar to the U.S. stock market. This creates a significant opportunity for Taiwanese investors to participate.

In terms of market composition, investors should focus on five key indices: the Shanghai Composite Index is a market indicator but cannot be traded directly; the CSI 300, CSI 500, CSI 1000, and SSE 50 are tradable and have corresponding ETFs and derivatives. Among these, the CSI 300 is the main entry point for overseas investors into China's stock market, with its constituent stocks often being high-quality companies that attract global attention.

According to the first-level industry classification by Shenwan, the mainland stock market mainly consists of financials, electronics, pharmaceuticals, food, and chemicals manufacturing sectors. Notably, banks (market cap: 15.87 trillion RMB), electronics (14.24 trillion RMB), and non-bank financials (8.02 trillion RMB) together account for nearly one-third of the market weight, indicating that finance and technology sectors are the core engines driving the entire market.

How to Buy Mainland China Stocks? Complete Channels and Account Opening Guide

Taiwanese investors mainly have two pathways to purchase Chinese stocks:

First is the domestic channel (CLOU - Cross-border Linkage of Underlying and Underlying). Through traditional brokers like Yuanta Securities, KGI Securities, or Fubon Securities via proprietary or entrusted trading, the advantages include familiarity with operations and good customer service. The drawbacks are relatively higher fees and limited product varieties.

Second is the foreign investor channel. Investing via U.S. stock brokers (such as Futu Securities, Tiger Brokers) or Hong Kong brokers offers a broader range of trading products, lower transaction costs, and more flexible fund management. For active traders or those utilizing derivatives, foreign channels are more advantageous.

When choosing a broker, focus on four factors: the platform's regulatory compliance, ease of fund deposits, variety of investment products, and platform usability with Chinese language support. Additionally, many top Chinese companies choose to list in Hong Kong and the U.S., such as Tencent (0700.HK) and Alibaba (9988.HK), which are also excellent options for Taiwanese investors.

Three Major Drivers of Mainland Stocks: Policies, Liquidity, and Fundamentals

To understand the characteristics of China's stock market, it is essential to recognize the three core forces driving its cyclical movements.

Liquidity is the most direct influence. Policies such as reserve requirement ratio cuts, interest rate reductions, and increased credit supply often trigger bull markets; conversely, rate hikes, tightening of monetary policy, deleveraging, and credit contraction tend to end bullish phases. Monitoring monetary policy trends is thus crucial for timing investments.

Policy and institutional drivers shape the "policy market" nature of Chinese stocks. When the government introduces major favorable policies (e.g., developing the capital market, supporting strategic industries) or advances significant reforms (e.g., the split-share structure reform, registration system reform), they often trigger noticeable upward trends.

Fundamentals underpin healthy, sustainable growth. Genuine profit growth and macroeconomic recovery are fundamental to supporting rising stock valuations. Conversely, economic downturns and slowing corporate earnings make sustained gains difficult.

Historical Insights: New Opportunities in the 2024 Rebound

After many investors considered the market "not worth investing in," Chinese stocks have performed remarkably since September 2024. The turning point was on September 24, when the central financial authorities issued a series of major measures to support the economy and the stock market. This rally demonstrated China's strong rebound capability.

Historically, China's stock market exhibits typical "short bull, long bear, sharp rises and falls" characteristics, quite different from the long-term gradual bull of U.S. markets. Since 2010, four clear cycles have emerged:

• 2010–2014: After the four-trillion stimulus, excess capacity and inflation surged, leading to monetary tightening and a long-term bear market.
• 2015–2016: Regulatory cleanup of off-market margin trading triggered deleveraging and liquidity crises, with "limit-down" days and rapid bear market.
• 2022–2024: Despite policy efforts to stabilize, economic recovery lagged, and the market remained volatile.
• From September 2024 onward: Policy support and improved liquidity have initiated a new upward cycle.

How Do International Institutions View China's Stock Market Outlook?

Major global investment banks like Goldman Sachs, JPMorgan Chase, and UBS have recently issued optimistic outlooks. Goldman Sachs predicts that China's stock market is entering a more stable upward phase, with about 30% potential gains over the next few years. JPMorgan Chase shares this positive view.

Their optimism is based on three core assessments:

• AI technology and digital transformation are reshaping corporate profitability. Capital expenditure benefits are becoming evident, driving overall earnings growth.
• Government policies against internal competition ("anti-involution") are creating new profit opportunities for companies.
• Chinese manufacturing's continued competitiveness through "going global" strategies. These factors collectively push earnings growth rates toward approximately 12%.

Valuation repair potential is also significant. Leading companies in healthcare, finance, and entertainment sectors are generally reasonably valued with room for appreciation. Goldman Sachs highlights that China's stocks are undervalued relative to global markets, and potential international liquidity improvements further support valuation recovery.

Risk Warning: Be Cautious About the Realization of Fundamentals

However, optimistic expectations carry risks. Although some listed companies show accelerated profit growth, certain data agencies continue to revise downward their profit forecasts for Chinese stocks overall. The current rally is mainly driven by valuation expansion rather than fundamental improvement, so future performance depends on whether corporate profits can sustain current valuations.

The forward P/E ratio of MSCI China has reached 12.8x, above its ten-year average of 11x. While Chinese tech firms' valuations are still significantly below the S&P 500's 22x, factors such as lower profit margins, regulatory uncertainties, and earlier stage of development mean this valuation gap reflects real risks.

Therefore, investors should recognize that: if macroeconomic recovery underperforms expectations, corporate profits may not support current valuations, leading to market corrections.

Selected Stocks and Layered Investment Strategies

Based on comprehensive analysis, the following five companies represent high-quality options across different sectors:

• Cambricon (Market cap: 64.3 billion RMB, Semiconductor industry, ROE 25.21%): Leader in AI chip design with unique technological advantages, poised for explosive growth.
• Contemporary Amperex Technology (CATL) (Market cap: 1.78 trillion RMB, Power lithium batteries, ROE 17.76%): Global leader in power batteries, with long-term growth driven by energy transition and carbon neutrality.
• Ningbo Bank (Market cap: 183.3 billion RMB, Banking, ROE 6.9%): With distinctive governance and talent advantages, focusing on high-value clients in specific regions, offering stable cash flow.
• Hengrui Medicine (Market cap: 435.9 billion RMB, Pharmaceuticals, ROE 9.42%): Continuous R&D innovation, with irreplaceable value in China's pharma upgrade.
• China Mobile (Market cap: 1.58 trillion RMB, Telecom, ROE 8.3%): Monopoly-like core business providing stable cash flow and high dividend payout, ensuring ongoing income for shareholders.

For different investment styles, layered strategies can be employed: long-term growth seekers should focus on tech and new energy stocks (Cambricon, CATL); those seeking stable cash flow can allocate to financials and telecom (Ningbo Bank, China Mobile); balanced investors may find opportunities in the pharmaceutical sector (Hengrui Medicine).

Summary: Rational Approach to Investing in Mainland China Stocks

The key to investing in Chinese stocks is understanding "why to buy" and "how to buy." From market structure, investment channels, historical cycles, to international perspectives, this market offers both opportunities and risks.

Our core view is: due to improving corporate profits and valuation recovery, the long-term allocation value of Chinese assets is indeed rising, but caution is needed to see if fundamentals can materialize. Choosing appropriate channels, diversifying risk, and regularly reviewing your portfolio are essential for success.

Whether through proprietary trading or foreign channels, the most important is establishing a clear investment logic, aligning with your risk tolerance, and maintaining rational judgment amid market changes. The Chinese stock market is entering a new development phase—prepared investors will be better positioned to seize the opportunities ahead.