Essays on The Development of Chinese Stock Market and Its Critical Issues for Future Development Case Study

Download full paperFile format: .doc, available for editing

The paper "The Development of Chinese Stock Market and Its Critical Issues for Future Development" is a perfect example of a business case study.   There have been tremendous changes experienced in China (Gao 2002). The changes range from an economy that is centrally planned in the mid-20th century to an economy that is more market-oriented since the eighties. Contemporarily, the economy of China is among the most significant global economy participants. The emerging Chinese stock market has experienced tremendous development and growth. This has however happened since the establishment of the 1990 Shenzhen and Shanghai stoke exchanges.

The development however still believed to be in its tender or early stages since 1990, it has been noted that the number of companies listed in both the stock exchanges developed by at least one hundred times. The total capitalization of the market by far is more than five hundred billion US dollars (Jianguo et al. 2007). Research shows that the stock market of China has got a number of negative things (Lu, 2014). The negative things, for instance, include a structure of governance that is incompetent, significant market defect structures, and a regulatory capacity that is inadequate and finally wild market manipulators.

It is, therefore, necessary to fix the issues for the sake of future long-term development of the economy in the market. There are a number of market features in China that are idiosyncratic and unique. The features, for instance, include the different shares that are offered to state, enterprises, and individuals with different circulation regulation and purchasing costs and finally strict market segmentation for foreign and domestic investors (Lu 2014). Other features also include high rates of transfers high profit-earning (P/E) indicator values and risks that are relatively high.

There is a relatively low quality of investor education as well. The regulatory system maturity is also doubtful. This paper analyzes the development of the stock market of China indicating the fundamental future development issues (Lu 2014). The Development of the Chinese Stock Markets The People’ s Republic of China saw the two exchange markets opening in 1990 (OECD 2003). The Shangai Stock Exchange which was established in 1990 and in 1991 the Shenzhen stock exchange was also established.

The two stock markets have been rapidly developing since then. Their developments have significantly contributed to the economic growth of the country. The stock markets stimulate corporate governance, financing and investment, and the entire financial system of China. Some Chinese economists in the 1980s raised the use of shareholding system possible for the purposes of improving the corporate ownership and structure of the government (Swanson 2007). Some enterprises at the same time (the 1980s) begun to offer equity shares to the public so as to raise capital.

The early shareholding companies’ success gives encouragement to more enterprises to follow. Shareholding hence ends up becoming a practice accepted by the government. The over the counter share trading by the late 80s was popular in cities such as Shenzhen and Shanghai where there was a high concentration of the shareholding companies. The two stock exchanges (Shanghai and Shenzhen) were established in 1990 and 1991 respectively by the government so as to discourage the black-market trading as well as the unorganized trading (Huang et al. 2002). The two exchanges were set to help in shares trading centralization and promotion of advanced mechanisms of trading.

They did so by, for instance, making use of mechanisms of the trade such as paperless trading and matching of orders by the help of computers. The innovations have significantly improved, in a tremendous manner, the market efficiency for equity share trading. The two-stoke exchanges in 1991 made a launch of the B-shares that were seen to have dominated Hong Kong or US dollars. The B-shares were exclusively available for investors outside the mainland of China and were designed so as to attract Chinese foreign-currency investment (Wang 1999).

References

List of references

Allen F. et al., 2005, ‘Law, finance, and economic growth in China,’ Journal of Financial Economics, Vol.77, pp.57–116.

Amihud Y., 2002, “Illiquidity and stock returns: cross-section and time-series effects,” Journal of Financial Markets, Vol.5, pp.31–56.

Amihud Y., 1988, ‘Liquidity and asset prices: Financial manage-meant implications,’ Financial Management, pp.5–15.

Asness C., 2013, ‘Value and momentum everywhere,’ The Journal of Finance, Vol.68, pp.929–985.

Bai J., 2013, “Have financial markets become more informative?” New York, University Working paper.

Baker M. el al., 2003, ‘When does the market matter? Stock prices and the investment of equity-dependent firms, The Quarterly Journal of Economic,’ Vol.118, pp.969–1005.

Bali T et al, 2011, ‘Maxing out: Stocks as lotteries and the cross-section of expected returns,’ Journal of Financial Economics, Vol.99, pp.427–446.

Banz R., 1981, ‘The relationship between return and market value of common stocks,’ Journal of Financial Economics, Vol.9, pp.3–18.

Gao S., 2002, “Dow Jones Indexes: China Stock Market in a global perspective”, Dow Jones & Company, Inc.

Huang S et al., 2002, “The Capital Structure of China’s Listed Companies”, Working paper, School of Economics and Finance, University of Hong Kong.

Heilmann S., 2002, “The Chinese Stock Market: Pitfalls of a Policy-driven Market,” Retrieved 16th May from,

< http://www.chinapolitik.de/resources/no_15.pdf>

Jianguo C., et al., 2007, “Size, book/market ratio and risk factor returns: evidence from China A-share market”, Managerial Finance, Vol.33, No.8, pp. 574-594.

Joes D., 2002, “China stock market in a global perspective,” Retrieved on 16th May 2015 from,

< http://people.stern.nyu.edu/jmei/b40/ChinaIndexCom.pdf>

Lu F., 2014, “The Real Value of China’s Stock Market,” Retrieved on 16th May 2015 from,

OECD, 2003, “China: Progress and Reform Challenges”, Business & Economics.

Swanson K.C., 2007, “China Stock Market”, Institutional Investor, Vol.41, No.9, Special Section pp.1-4, 3p, 3c.

Wang G., 1999, “China’s Finance in 21 Centuries”, Social Science Literature Publisher, Beijing, PRC.

Download full paperFile format: .doc, available for editing
Contact Us