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 7: China’s Insurance Market: Challenges and Opportunities

Hung-gay Fung, Fei Liu and Yanda Xu

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


Hung-gay Fung, Fei Liu and Yanda Xu THE MACROECONOMIC ENVIRONMENT Since China’s economic reform started in late 1978, it has been shifted from a centrally planned economy to a market oriented economy. China’s GDP (gross domestic product) has increased by 8.5 percent annually from 2000 to 2004 and reached a new record of US$2.26 trillion in 2005, which placed China as the fourth largest economy in the world after the US, Japan and Germany. Corresponding to the growth of the Chinese economy, the insurance premiums increased 39.6 percent annually from 1980 to 1998, a higher growth rate than the GDP growth rate over the same period.1 With respect to savings deposits, China also experiences tremendous growth. Urban disposable income per capita had a steady annual increase of 10 percent over 2000–2004. Personal deposits reached RMB14 trillion (US$1.7 trillion) at the end of 2005, an increase of more than 20 percent over the same period one year earlier. Table 7.1 shows the general economic indicators in China between 2000 and 2004. All variables including GDP growth, industrial output, retail sales and disposal income indicate rapid growth. With fast-growing wealth, Chinese consumers gradually deviate from the traditional consumption style which focuses on necessities, and begin to increase their spending on durable consumer goods such as housing and automobiles. These durable consumer goods have become popular among the rich and middle class in recent years. Consumption growth directly generates higher demand for homeowner and auto insurance. 165 166 Banking, insurance...

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