A Review of China's Financial Markets

Annu. Rev. Financ. Econ. 14. In press

69 Pages Posted: 10 May 2022

See all articles by Grace Xing Hu

Grace Xing Hu

PBC School of Finance, Tsinghua University

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management; China Academy of Financial Research (CAFR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 31, 2022

Abstract

The fast growth of China's economy has brought it not only to the center of the world's economic system but also to a new transition point in its growth model, a transition from scale to efficiency, speed to sustainability, input driven to innovation led. How the financial markets can support and drive this new growth model and facilitate the transition to it are pressing challenges, not just for China but also for the world. We provide a comprehensive review of China's financial markets, including government bonds, corporate/credit bonds, stocks, asset-backed securities, financial derivatives, investment management, and currency, focusing on their development, distinct characteristics and unique opportunities. While China's financial markets have experienced tremendous growth over the same period, especially recently, their development often lags the pace of the economy, uneven over time and across different markets. While some markets, such as the stock market, have quickly gained global prominence, many other markets, such as the corporate bond, asset-backed securities and derivatives markets, are still at their early stage. Even for markets reaching great scale, such as government bond and stock markets, they still exhibit major limitations in serving their key functions such as liquidity provision, risk allocation and price discovery. These patterns arise because the development of China's financial markets are often driven more by the government's desire to support particular policy objectives at the time than the goal of having them best serve their basic market functions. China's financial markets not only provide an interesting cross-section in expanding our understanding of financial markets in general, but also raise important practical questions such as how to further develop them to better meet its developmental needs.

Keywords: China, government bonds, corporate bonds, stocks, asset-backed securities, deriva- tives, investment management, FX

JEL Classification: G12, G14

Suggested Citation

Hu, Grace Xing and Wang, Jiang, A Review of China's Financial Markets (March 31, 2022). Annu. Rev. Financ. Econ. 14. In press, Available at SSRN: https://ssrn.com/abstract=4099958

Grace Xing Hu (Contact Author)

PBC School of Finance, Tsinghua University ( email )

43 Chengfu Road
Haidian District
Beijing, Beijing 100083
China

Jiang Wang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E62-614
100 Main Street
Cambridge, MA 02142
United States
617-253-2632 (Phone)
617-258-6855 (Fax)

China Academy of Financial Research (CAFR) ( email )

1954 Huashan Road
Shanghai P.R.China, 200030
China

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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