Challenges from WTO Membership
Advances in Chinese Economic Studies series
Edited by Kam C. Chan, Hung-Gay Fung and Qingfeng ‘Wilson’ Liu
Introduction: Development and Challenges of Chinese Financial Markets
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...