The China Venture

There have been discussions as to whether China is moving toward a German-Japanese model
with strong financial intermediaries or toward an Anglo -American model where financial
markets play a more significant part in the economic process. It seems that the current policy-
makers have a long-term vision of creating a financial system where intermediation plays an
important part and where direct access to financial markets for non-financial institutions will
be strongly regulated and obstructed.
2.3.2.1 Stock market
Since stock markets per definition imply a certain degree of privatisation in the economy, the
development has not been actively encouraged. The experimental phase of stock trading
started with stocks being sporadically sold and bought over the counter in 1982. Since then,
two securities exchanges have emerged: the Shanghai Stock Exchange (SSE) and the
Shenzhen Securities Exchange. They were established in 1984 and 1987 respectively and
received officially recognition in 1990 and 1991. The SSE is China’s largest securities
exchange. It has about 500 members and operates on a cash-only basis. Its computer system is
capable of handling 1’000 transactions per second. Settlement is well functioned and efficient.
In addition, China has companies listed on the Hong Kong Stock exchange, so called „red
chips“ and two on the New York Stock Exchange. Due to the strict listing and trading
regulations, an illegal market for company stocks has emerged. 49
The stocks listed on both domestic stock exchanges are divided in A- and B-shares. The
former is only available for Chinese investors while the latter is only tradable by foreign
investors with nomination in RMB but settlement in US$ in Shanghai or HK$ in Shenzhen.
One of the reasons for this division is the lack of full convertibility of the RMB. Only a few
listed companies have no interest holdings by the government. The regulatory mechanism of
the capital market is still centralised through the China Securities Regulatory Commission
(CSRC), which is primarily responsible for implementing and regulations and for supervising
securities forms and markets.
The A-shares tend to maintain price-equity ratios well above those in more mature markets,
although trading is volatile, while the B-shares have more similar price -equity ratios to those
in western exchanges, but with small selection and insufficient liquidity. One of the reasons
for the high volatility in the domestic secondary markets, is the dominance of individual
49 Semkow et al., 1995, p. 266-267, Schüller, 1995, pp. 933 and Chan, 1995, pp. 1.
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