Chinese stocks have dramatically underperformed the country's economic boom over the past 25 years. While China's nominal GDP grew 27-fold in US dollar terms since 2000, equity investors saw minimal returns. Each dot on the chart shows emerging markets' economic growth versus stock performance, with China sitting as the red dot in the bottom right.

EM Advisors research reveals the culprit: massive dilution through share issuance. Since 2002, total listed earnings grew at 14% annually while earnings per share compounded at only single-digit rates. The gap? New shares flooding the market. Five of today's Mag7 stocks weren't even in the S&P 500 in 2000, showing how dynamic markets can be.

Chinese exchanges saw particularly extreme dilution through multiple channels. The medium blue bars show official secondary issuance exceeding original market cap, while red bars represent "stealth dilution" from converting non-tradeable shares and creating new ones. This unexplained residual dwarfs all other sources combined. The dilution pattern spiked during bull runs, with 2007 seeing issuance equivalent to a quarter of total market cap. While this practice has declined recently, investors remain wary of a market where economic growth and stock returns have diverged so dramatically.