China’s Stock-Market Rescue Could Create the Next Great Bubble

Beijing has stopped the rout—for now. Here are three stocks that could survive after government support disappears.

Governments can stop a stock-market crash.

They cannot repeal the laws of valuation.

China’s government may be about to learn that lesson all over again.

Following a brutal technology-led sell-off, Beijing sent in what Chinese investors call the “national team”—a collection of government-controlled investment funds charged with restoring order when markets begin to unravel.

Two state-backed investment giants, China Reform Holdings and China Chengtong Holdings, deployed roughly 60 billion yuan—about $9 billion—into Chinese shares. State-owned companies followed with buybacks, additional stock purchases and accelerated dividend payments.

The intervention worked.

At least temporarily.

The CSI 300 had fallen more than 8% during July. Meanwhile, companies on Shanghai’s technology-heavy STAR Market traded at an average of roughly 86 times expected 2025 earnings. Fewer than half paid dividends. (Reuters)

That combination—collapsing prices and extravagant valuations—created an awkward dilemma for Beijing.

The companies China most wants to support are often the companies investors should be most reluctant to buy.

Let me explain…

China has intervened in its stock market before.

When Chinese shares collapsed in 2015, state funds bought stocks, officials restricted selling and hundreds of companies suspended trading.

Beijing eventually stopped the panic.

But it did not create genuine value.

It merely delayed the market’s reckoning.

Today, investors are learning the same lesson—but with a dangerous twist.

Western investors have long talked about the “Fed put.” The idea is that when markets fall far enough, the Federal Reserve will respond by cutting interest rates or injecting liquidity.

China is now creating what you might call the Beijing put.

Investors watch state funds enter the market. They conclude that Beijing has established a floor beneath politically favored technology shares.

So they take more risk.

They chase artificial-intelligence stocks. They overlook negative cash flow. They pay extravagant prices for semiconductor companies because they believe the government will protect them.

Economists call this moral hazard.

I call it a recipe for a bubble.

The stronger the government safety net appears, the more recklessly investors behave.

Of course, China’s technology ambitions are real.

China wants to reduce its dependence on Western semiconductors. It wants domestic artificial-intelligence champions. It wants Chinese companies raising capital in Shanghai and Hong Kong rather than New York.

But strategic importance does not guarantee shareholder returns.

Consider Cisco Systems.

At the peak of the dot-com boom, Cisco was one of the world’s finest businesses. It dominated the equipment that powered the internet. Analysts predicted it would become the first trillion-dollar company.

Then came the crash.

Cisco shares fell roughly 80%.

The company survived. Its shareholders paid the price.

The lesson?

A great company can still be a terrible investment when purchased at the wrong valuation.

That applies just as much in Shanghai today as it did on the Nasdaq in 2000.

So how should you invest?

Instead of chasing the most exciting artificial-intelligence stories, focus on profitable “picks and shovels” companies already selling the equipment, components and manufacturing capacity China needs.

Here are three stocks I would put on my watchlist.

NAURA Technology (Shenzhen: 002371) manufactures the machines used to produce semiconductors, including equipment for etching, deposition, cleaning and heat treatment.

In other words, it sells the picks and shovels of China’s semiconductor gold rush.

During the first quarter of 2026, NAURA’s revenue rose 25.8% to 10.3 billion yuan. Operating cash flow increased 143%. Profit growth was slower because the company increased research and development spending by almost 37%. (CNINFO)

That is the kind of spending I prefer to see.

NAURA is not merely promising investors that it will benefit from China’s semiconductor ambitions. It is generating sales, profits and cash while building its technological position.

Shennan Circuits (Shenzhen: 002916) manufactures printed circuit boards and semiconductor packaging substrates.

These components are essential for data centers, communications equipment and advanced computing systems.

The company’s first-quarter 2026 revenue rose 37.9% to 6.6 billion yuan. Net profit jumped 73% to 850 million yuan. (CNINFO)

Management later said demand from computing infrastructure and memory products was strengthening its circuit-board and packaging-substrate businesses. (CNINFO)

Unlike many fashionable AI businesses, Shennan Circuits is not selling a distant dream.

It is selling physical components into visible demand.

Semiconductor Manufacturing International Corporation, better known as SMIC (Hong Kong: 0981; Shanghai: 688981), is China’s leading semiconductor foundry.

Its importance to Beijing is difficult to exaggerate.

In 2025, SMIC’s revenue rose 16.2% to $9.3 billion. First-quarter 2026 revenue reached $2.5 billion, with a gross margin of 20.1%. Management expected second-quarter revenue to rise another 14% to 16% sequentially. (HKEX News)

SMIC carries substantial political, technological and capital-spending risks.

But unlike many speculative chip companies, it already possesses customers, factories and billions of dollars in annual revenue.

I would not buy any of these stocks at any price.

Valuation still matters.

But NAURA Technology, Shennan Circuits and SMIC represent a better way to participate in China’s technology ambitions than chasing whichever AI company dominates this week’s headlines.

Beijing can determine when the panic ends.

It can direct capital toward favored industries.

It can even teach investors that technology shares come with government protection.

But once the national team stops buying, only profits and cash flow will separate lasting investments from the wreckage of the next bubble.