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.

Chapter 4: The Small- and Medium-Enterprise Stock Market

Hung-gay Fung and Qingfeng ‘Wilson’ Liu

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


Hung-gay Fung and Qingfeng ‘Wilson’ Liu INTRODUCTION Before 1978, China’s economy had been controlled by a central-planning system in which all enterprises were either state-owned or collectivelyowned, with all aspects of operations directly administered by the government. The financing of these enterprises was managed by the government through the state-owned banking system, which granted loans in accordance with policy priorities.1 Since the late leader Deng Xiaoping began the economic reforms in 1978, many small and medium-sized private enterprises (SMEs) have emerged. An example was the large number of countryside textile workshops that sprang up in the coastal provinces of Jiangsu and Zhejiang. For these private businesses, it was difficult to obtain a loan from the state-owned banking system, limiting their business development potential. Out of the large number of private businesses, only a small proportion were able to grow into mature enterprises and achieve economies of scale. The stock market was formally established in the early 1990s with the opening of the Shanghai on 19 December, 1990 and Shenzhen Stock Exchanges on 3 July, 1991. Chinese companies that were able to get listed on exchanges and sought financing by issuing stocks were mostly stateowned or partially privatized state-owned enterprises. The strict listing requirements and quota restrictions made it impossible for many private businesses to raise funds through stock exchanges, especially for those cashthirsty new high-tech firms. With the advent of the information age in the mid- to late-1990s, many high-tech firms emerged. For example, Beijing’s Zhongguancun Science and Technology...

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