Last week, Chinese stocks experienced their most significant gains since 2015, driven by a series of economic measures. However, Lu Ting, chief China economist at Nomura Holdings, has urged investors to heed the lessons of 2015 when an epic boom was followed by a devastating bust. Lu warns that current market momentum and social media sentiment suggest the risk of a similar scenario could escalate rapidly in the coming weeks.

While some investors may enjoy the current surge, Lu and other financial experts, including household names like JPMorgan Asset Management, HSBC Global Private Banking, and Invesco Ltd., are advising caution. Invesco, for instance, is concerned that mainland shares are “really overvalued.” Nonetheless, investment giants like Fidelity International and Goldman Sachs Group remain optimistic, highlighting the potential upside if Beijing’s stimulus measures are successfully implemented.

Despite these differing perspectives, Xi Jinping’s government must remain vigilant. In 2015, the Chinese stock market lost a third of its value in just three weeks, prompting a massive government intervention. This time, the response has been less overwhelming, although the People’s Bank of China has introduced various measures, including cutting borrowing costs and slashing banks’ reserve requirement ratios, to stabilize the market.

Behind the scenes, economists stress that addressing the symptoms of China’s economic challenges with liquidity measures is not enough. The property crisis and rising local government debt have pushed China towards deflation, drawing unsettling comparisons to Japan’s economic woes since the 1990s. Structural reforms to increase competitiveness and prevent boom-bust cycles are paramount.

The 2015 crisis saw a comprehensive government response, from suspending trading to marketing campaigns promoting stock-buying as a patriotic act. While initially effective, these measures contradicted Xi’s earlier commitment to letting market forces play a decisive role. Repeating this approach might backfire, as it has in the past.

Michael Pettis of Carnegie China believes China needs a fundamental shift in its economic model to address these imbalances. Without such changes, China might face recurring problems, further complicated by an overextended central government balance sheet. Pettis contends that Xi’s latest fiscal measures fall short of real structural rebalancing.

China’s recent policy discussions, including July’s “Third Plenum,” indicate an awareness of necessary reforms. However, maintaining this momentum is crucial for ensuring the stability and long-term growth of the Chinese economy.