CHINA'S SECURITIES EXPERIMENT: THE CHALLENGE OF GLOBALIZATION
(Jiangyu Wang)

V. Analysis and Conclusion

C. Conclusion: Toward A More Global Securities Market

Placing a sound and fast growing economy as the core for the realization of its international strategy, China is determined to develop a well-run capital market. Recently, in response to the sluggish securities market, Chinese securities authorities has taking gradual, yet significant toward building a more global market. In my opinion, more bold reforms are still needed in the following respect.

First of all, based on above analysis, one cannot escape to draw the conclusion that the State dominance in the securities market should be relinquished and government control should be loosened. Currently stock shares are classified by the identity of the shareholders and the shares holder by the State or State owned companies are not on the market and their transfer are absolutely restricted between State agencies and State owned companies. Thus, a majority of the shares issued are excluded from the secondary market. In order to enhance the liquidity of the securities market and therefore increase the efficiency of resource allocation, the government should let the State shares and Legal Person Shares to be tradable in either stock exchanges or OTC markets, opening the aforesaid shares to individual holders. In addition, the government should avoid excessive administrative control over joint stock companies and vigorously encourage nonstate shareholders to exercise their rights.

Another significant reform expected should be the merger of A shares and B shares market, thus eliminating the existing opportunities for arbitraging between types, to the ultimate detriment of the Chinese issuers. If the merger is done, it will then become possible for both foreign and domestic investor to purchase both kinds of shares. It has been said that the merger of the two markets will only take place when the capital account become convertible and the RMB can be limitedly exchanged or purchased by foreigners. This is not a big issue given the fact that China has a huge international financial reserve, only second to Japan. For the merger Chinese regulators should not worry too much, because China now is enthusiastic in attracting foreign investment and foreign portfolio investment is only another form of investment.

China also should provide a more sustainable legal framework which is largely deregulation-oriented. The existing Securities Law is more restrictive than necessary. Moreover, transparency in the legal system is definitely essential , not only to meet the WTO requirements, but also to stimulate the creativity of market participants and eventually to the healthy development of the securities market.

Considering its short period of re-emergence and regardless the present problems, China's securities has been somewhat successful in attracting capital and restructuring State owned enterprises. To achieve its goals of making its stock exchanges one of the major international financial centers, China must take bold steps toward internationalization and privation and to embrace a mature and efficient regulatory system compatible with major international market standards. If China does, it will present the world with a huge but attractive securities market.

(Footnote Omitted)