A Review of China's Financial Markets
Annu. Rev. Financ. Econ. 14. In press
69 Pages Posted: 10 May 2022
There are 2 versions of this paper
A Review of China's Financial Markets
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: Suggested Citation