The stock exchange market in China has developed rapidly since the early 1990s. In 2007, the Chinese stock market overtook the Japanese market in terms of capitalization and topped the world in initial public offerings, underlining the dramatic surge in the country’s financial sector. Nonetheless, within one year the Chinese stock market plunged to less than a third of the value it held at its peak. This marks the most rapid decline of any major market in the world, even against the backdrop of a global financial crisis. The high level of volatility and the rapid growth of the Chinese stock market have attracted numerous studies that have focused on market operation and efficiency. In this paper, I will focus a study on two stock exchange market in China. Financial reform and the need to establish a stock market in China China began its reform programs at a particular moment under a unique economic history and was able to develop its own distinctive approach to financial development and financial reform. In China, the banking sector replaced the government fiscal sector in the mid 1980s as the main source of long-term funds. However, a high level of bad debt, which reached 20% of total loans by the end of 1994, persisted throughout China during this period.The banking sector, which was required to improve asset-liability management after the implementation of the Commercial Banking Law effective 1 July 1995, had a very small margin to meet increasing demand for long-term funds. Moreover, by the early 1990s the liabilities of state-owned enterprises (SOEs) reached a very high proportion of total asset value. Consequently, not only did many SOEs face debt-servicing problems, but they also experienced severe working capital shortages. Largely this situation was attributable to the lack of flexible fundraising channels. China, therefore, must give higher priority to the stable supply of long-term funds through the stock market.
There are two stock exchanges in China, they are:
1. Shanghai Stock Exchange (SSE)
The Shanghai Stock Exchange (SSE) was founded on Nov. 26th, 1990 and in operation on Dec.19th the same year. It is a membership institution directly governed by the China Securities Regulatory Commission (CSRC). After several years' operation, the SSE has become the most preeminent stock market in Mainland China in terms of number of listed companies, number of shares listed, total market value, tradable market value, securities turnover in value, stock turnover in value and the T-bond turnover in value. As at the end of 2009, SSE boasted 1,351 listed securities and 870 listed companies, with a combined market capitalization of RMB 18,465.523 billion and a total of 89.6543 million trading accounts. A large number of companies from key industries, infrastructure and high-tech sectors have not only raised capital, but also improved their operation mechanism through listing on Shanghai stock market.
2. Shenzhen Stock Exchange (SZSE)
The Shenzhen Stock Exchange (SZSE) established on 1st December 1990, is a self-regulated legal entity under the supervision of China Securities Regulatory Commission (CSRC). SZSE is committed to its mission to develop China’s multi-tier capital market system. It gives full support to development in small and medium businesses and implementation of the national strategy of independent innovation. The SME Board was launched in May 2004. The ChiNext Market was inaugurated in October 2009. By 30 June 2010, SZSE was home to 1,012 listed companies, with 485 on the main board, 437 on the SME board and 90 on the ChiNext market. The total market capitalization was valued at 5.6 trillion yuan (US$828.7 billion). In the first half of 2010, SZSE raised 154.3 billion yuan (US$22.7 billion) in IPO proceeds and recorded a total trading value of 9.73 trillion yuan (US$1.43 trillion). There are 3 basic types of shares:
A-Shares on the Shanghai and Shenzhen stock exchanges...
Please join StudyMode to read the full document