China’s Capital Markets

China’s Capital Markets

Challenges from WTO Membership

Advances in Chinese Economic Studies series

Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu

China’s economy has been growing rapidly since the late 1970s and is expected to maintain this momentum in the foreseeable future. Coupled with the biggest population in the world, there is tremendous growth potential for China’s capital markets and financial services industry, both vital to the continued development of the economy. The contributors present research on all facets of China’s markets including: stock and bond markets; futures and over-the-counter markets; regulatory issues; and the development and roles of financial institutions such as brokerage firms, banks and insurance companies. Also addressed are the recent performance of equity markets, the emergence of small and medium enterprises, and the state banks’ bids to be listed in overseas stock exchanges. Taken together, the book sheds a welcome light on China’s overall economic growth.

Introduction: Development and Challenges of Chinese Financial Markets

Kam C. Chan, Hung-gay Fung and Qingfeng 'Wilson' Liu

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation


Introduction: development and challenges of Chinese financial markets Kam C. Chan, Hung-gay Fung and Qingfeng ‘Wilson’ Liu INTRODUCTION China’s capital market grew substantially in the decade after the Shanghai Stock Exchange market opened in 1990. Despite China’s impressive economic performance, the development of its capital market has encountered various hurdles. As China has evolved from a planned economy to a market-oriented economy in which the stock and bond markets have enabled Chinese corporations to raise external funds, the Chinese economy today is still dominated by banks. China is a bank-based economy overall. Panel A of Table I.1 shows the importance of banks in China and other countries as compared to the stock market capitalization. Bank credits in China account for 141 percent of its GDP, a very high figure in comparison to other countries in East Asia and the US, implying the importance of bank loans to the Chinese economy. The numbers point to the fact that China is a bank-based economy. At the same time, China’s stock market capitalization is about 39 percent of its GDP, a low figure compared to Japan (79 percent), Euro area (55 percent) and the US (129 percent). These figures suggest that China’s capital structure (that is, the relations between the equity market and the bank loans market) remains unbalanced and underdeveloped due to limited equity financing for corporations when compared to developed countries including the traditional bankingdominated European economies (55 percent), or even with Korea (57 percent of GDP) and other emerging markets...