Law and Finance: The Case of Stock Market Development in China (original) (raw)

Unraveling China's Capital Market Growth: A Political Economy Account

2019

Milhaupt and Pistor took an illuminating approach to the relationship between law and economic development through the corporate governance lens. The authors offered an analysis of several country-based case studies that question many of the conventional law and development theories. See CURTIS J. MILHAUPT & KATHARINA PISTOR, LAW & CAPITALISM (2008). 13 ADOLF A. BERLE & C. GARDINER, MEANS, THE MODERN CORPORATION AND PRIVATE PROPERTY 129 (rev. ed. 1967). 14 Note that this does not mean that capital markets are crucial for economic growth; the evidence for that is far from conclusive. Yet scholars are largely in agreement that growth can be expanded when capital market activity increases. For the claim that higher levels of financial development are positively associated with economic development, see Robert G.

Dancing with Wolves: Regulation and De-regulation of Foreign Investment in China's Stock Market

Bepress Legal Series, 2004

China's stock market is the world's youngest one and the fastest-growing one as well. During the past decade, it has been developed with a variety of unique features, most of which are inconsistent with the concept of a viable market economy. China's dualist regulatory regime has different sets of rules for domestic participants and foreign investors. For a long period, foreign investment in the stock market was subject to severe restrictions and effectively excluded from all market activities except in the B shares market. Fundamental changes, however, have occurred following China's accession to the WTO, especially in the last two years. Now qualified foreign institutional investors (QFIIs) are allowed participate in the market, as are foreign firms that wish to acquire Chinese enterprises including listed SOEs. This article, after introducing China's existing legal rules on foreign participation in the stock market, analyzes the major legal and corporate governance obstacles facing foreign investors. It concludes that, in order to achieve the ambition to make its stock market one of the most successful in the world and to meet its WTO obligations, China needs to substantially improve its regulatory and legal framework and adjust to different regulatory philosophies, including rethinking the role of foreign investors, redefining the role and functions of government with a view to providing institutions supporting the market, and creating real good corporate governance for listed companies. To achieve this, the key is to accelerate privatization, which has picked up speed in 2003. I. BACKGROUND: A SPINDLING STOCK MARKET AND THE DUALIST REGULATORY REGIME A. Evolution of the Chinese Stock Market and the Regulatory Regime Before the early 1950s China was once the home to one of Asia's largest stock markets. 13 During the 1940s Shanghai Securities Exchange was the largest stock exchange 13 According to a documentary book compiled by Mr. Liu Hongru, the first head of PRC's regulatory

Different Legal Institutions for Different Economic Settings : Evidence from Interviews in China

2015

China’s rapid growth in the absence of autonomous legal institutions of the kind found in the west seems to pose a problem for theories which stress the importance of law for economic development. In this paper we draw on interviews with lawyers, entrepreneurs and financial market actors to illustrate the complexity of attitudes to law and economic growth in contemporary China. In the case of product markets, business relations are increasingly characterised by a mix of trust-based transacting and legal formality which is not fundamentally different from practice in the west. Financial markets are less like their western counterparts, thanks to the preponderant role of government in asset allocation, and a lack of transparency in market pricing. However, in both sets of markets we find evidence of a transition from inter-personal trust (guanxi) to impersonal transacting, and of growing demands from business and legal groups for the impartial application of legal rules and market reg...

Governing Emerging Stock Markets: legal vs administrative governance

Corporate Governance, 2005

Transition economies face a fundamental dilemma. They need to develop financial markets, and yet they lack the ingredients it takes to do so. Recipes for legal governance mechanisms that have worked elsewhere, including reactive law enforcement by courts and proactive law enforcement by regulators, may not help in the short to medium term. Using evidence from stock market development in China and Russia, this paper suggests that at least in the short term, administrative governance may be a viable alternative to legal governance in emerging stock markets.

The Role of Law in China's Economic Development

China's Great Economic Transformation

The Role of Law in China's Economic Development 379 mushroomed. The role of the courts has expanded considerably, and at least in the cities the salaries and benefits enjoyed by judges have been enhanced greatly through court fees. 5 Perhaps most symptomatic of the change in the role of law has been the change in the role of lawyers. In 1983, five years into the reform era, China had only 8,600 full-time lawyers (Chen, 2004). By 2005, that number had increased to well over 100,000, 6 and the year 2004 saw over 40,000 new LL.B. graduates (China School Net, 2005). There is no reason to doubt that this is a supply response to income opportunities, which in turn suggests that what lawyers do has much more value than before. Of course, some of this work may be old-fashioned "fixing." But it is fixing within an increasingly dense web of rules that barely existed at the outset of reform. Just as Naughton (1995) has characterized the economic reform process as "growing out of the plan," so may the process of legal reform be described as growing out of the system of administrative directives. Unlike in the states of the former Soviet Union and Eastern Europe, in China the planned economy was not suddenly abolished. Within the Chinese state sector, the replacement of administrative directives with legal methods of supervision and control has been very gradual. Even today the senior management of enterprises in which the state has an important stake are selected and vetted through the Communist Party personnel system, with the board of directors merely supplying legitimacy. 7 Yet the operations of state enterprises are increasingly subject to legal instead of administrative regulation. For example, contract disputes with nonstate suppliers and customers cannot be resolved administratively, because there is no common superior. The great expansion in the number and importance of economic actors that are not core parts of the traditional state system reinforced the process of growing out of the system of administrative directives. Privately owned enterprises have had to rely largely on the legal system for organizational vehicles 8 and remedies for wrongs suffered. Early on, the legal system did not provide much, but over time it became more responsive. For example, article 31 of the 1986 General Principles of Civil Law (GPCL) requires a written agreement for a partnership. However, just one year 5 As of 2004, for example, an experienced senior judge in Shanghai could have annual earnings of 110,000 yuan (Gechlik, 2005). 6 The exact number depends on whom you count. There were more than 103,000 full-time lawyers in law firms, but another 16,000 working part-time or in government, the military, companies, or legal aid services (Ministry of Justice, 2005). 7 In November 2004, for example, the Chinese government undertook a remarkable reshuffling of top executives in its majority-owned, but ostensibly independent, telecommunications companies, with the executive vice president of China Mobile becoming the president of China Telecom, the executive vice president of China Telecom becoming the president of China Unicom, and the president of China Unicom becoming the president of China Mobile (Financial Times, 2004). 8 By contrast, state-owned enterprises, for example, existed for decades before the promulgation in 1988 of a law providing for their existence and organization.

Same same, but different: Varieties of capital markets, Chinese state capitalism and the global financial order

Competition & Change

Since 2009, China’s capital markets have developed and internationalized to an unprecedented degree, which has contributed to a lot of debates on China’s rise and its implications for the global financial order. Contributing to these debates, this article analyses the development of capital markets in China and their integration into global finance between 2009 and 2019, focusing on three aspects: how Chinese capital markets are developing domestically; how they are integrating with global markets; and how Chinese capital markets are internationalizing, i.e. expanding abroad. Thereby, the article analyses the crucial role of securities exchanges who as organizers of capital markets are powerful actors that exercise considerable influence over these markets and their development. This empirical investigation reveals that while they share some characteristics with ‘global’ capital markets, Chinese capital markets function quite differently. The article argues that China’s state-owned ...