Political Economy of Stock Market Development in China

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Political Economy of Stock Market Development in
China

• Professor Mary Cooper
• Political Science Dept
• Ohio State University

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History of Stock Markets in China

• First established 1882
• Closed after founding of PRC in 1949
• Shanghai and Shenzhen Stock Exchanges established
  in 1990

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Explanations for Stock Exchange Creation

• Economic
• Efficiency
• Level of Development

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Explanations (continued)

• Political
• Facilitate Privatization
• Legitimacy/Prestige
• Political economy literature suggests that BANKS
  are preferred to stock markets
• Developmental state
• Channel resources to supporters

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Chinas Stock Market Created According to
Political Logic

• ? Great Wall Capitalism

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Links with SOE Reform

• Problems with SOEs
• Why is SOE reform difficult?
• Economic/technical
• Political
• Reform Strategies

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Outcome of SOE Reform

• By 1990, SOEs were least productive sector of
  Chinas economy
• But they still received about 2/3 of all fixed
  asset investment
• Implications for banking system

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Options in SOE Reform
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Features of Chinas Stock Markets

• Most listed companies former SOEs
• Administrative selection of companies for listing
• Separate categories of shares
• State remains largest shareholder
• Limited power of non-state shareholders
• Politically-driven market

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Current Issues

• Corporate governance
• Non-tradable shares