The Stock Market in China: Problems and Prospects for Domestic and Foreign Investment

Lan Yisheng

No 1997-07, Chinese Economies Research Centre (CERC) Working Papers from University of Adelaide, Chinese Economies Research Centre

Abstract: The stock market reappeared in Mainland China in the late 1980s and since then has experienced a rapid growth. Listed companies increased from one dozen in early 1991 to over 600 in mid 1997. The market capitalisation increased from less than 10 billion to over 1300 billion renminbi yuan in the same period. The market has some unique features like different shares issued to state, enterprise, individual share holders; different purchasing costs and circulation regulation for these shares; and strictly segmented markets for domestic investors and foreign investors. High P/E ratios, high system risks and high transfer rates have also been the special features of this market. The Chinese government has formulated the four principles of stock market development, i.e., the legal system, supervision, self-discipline, and standardisation in order to normalize its stock market. This paper comments on these developments and examines recent policy changes.

Date: 1997
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