Why China's stock market is bearish

China's A-share stock index has been mired in a continuous downturn this year, making it one of the worst performers worldwide in the first half of the year.

It has fallen by more than 4 percent so far this year and, in 2013, it fell by 11 percent, while the broader non-Japan Asian markets gained about 7 percent and the S&P 500 gained more than 17 percent.

The sharp contrast can be viewed as a reminder of China's slowing economy and the steady recovery in the Western world.

Indeed, the world's second-largest economy grew at an annual pace of 7.4 percent in the first quarter this year, slowing from 7.7 percent in the final quarter of last year. But the slowdown cannot explain the bear domestic stock market.

The stock market is supposed to reflect the ups and downs of the macro economy. Slowing economic activities have affected investor confidence in the prospects of the stock market, which is understandable. But it is not credible to attribute the sustained poor performance of China's A-share market since 2010 to the worsening economic fundamentals.

The micro-level management of the market is somewhat to blame.

Policymakers have initiated a series of reform plans since late 2013, when the new national leaders were sworn in, involving protection of individual investors, requirements for more complete information disclosure by listed companies, delisting rules, and stricter rules banning cheating and insider trading.

No doubt, those measures have laid a solid foundation for future development of the market and were rightly welcomed by investors. But, in the short term, it cannot change the fact that the domestic market lacks quality companies that are adaptable to changes in the macroeconomic landscape and remain highly profitable despite the worsening environment.