China’s Financial Market: 2006
Even though China’s financial system is highly under control, it has recently begun to expand quickly as monetary policy becomes important to its overall economic policy. Due to this effect, banks are becoming essential for china’s growing economy by lending more and more money to enterprises for investment purposes, which in turn increases the liquidity and also helps in lending money to the government. China’s financial development is aimed specifically at establishing a more indirect monetary policy system. Over the past decades, the development of the Chinese financial system has been an integral part of the improvement and growth of the Chinese economy. It has provided an intermediation role for the reutilizing of Chinese savings into the financing of enterprises. In this regard, the banking system has been and remains the dominant institution, although banks in China have not reached all the sectors equally. This intermediation role of the banking system has benefited very less SMEs and the rural & agriculture sectors than other sectors. The most vital source to increase productivity for SMEs was only financing which remains a bottleneck in their development. Also the role of equity markets in accelerating wealth creation and economic growth remains relatively small. The stock exchanges are growing, as providers of capital, but remain under-represented as a ratio of market capitalization to GDP. Other sources of equity capital, such as private equity, are also underdeveloped. China has a large number of large-cap companies and no lack of potential issuers. However, almost all who have publicly listed have done so in Hong Kong or offshore exclusively. This indicates a lack of confidence in the depth and breadth of domestic investor demand for equities, in particular the lack of a mature institutional investor sector with cash to invest and investment expertise. Pricing characteristics of the Chinese stock...
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