Development of the Chinese Capital Market
Currently, the Chinese financial sector is still largely dominated by banking. Apart from loans, capital sources are scarce and heavily regulated. In 2005, for example, almost 80% of finance sources of the non-financial sector consisted of bank loans.
With the establishment of the Shanghai and Shenzhen stock exchanges in 1990, an initial phase of euphoria started, but soon was followed by a crisis due to structural problems. In December 1998, China’s Securities Law was passed, the first national comprehensive securities legislation; In 2004, incremental measures to stabilize, readjust and consolidate the capital market were taken by the Chinese government. The end of the down-turn phase at the turn of the year 2005/2006 finally marked a new stage of capital market development in China.
China’s stock and bond markets are at the beginning of their development and have great potential due to the size of the market. But there are still enormous challenges lying ahead. The stock market is characterized by a high level of volatility. A lack of investor protection and a low level of corporate governance pose major threats. Investment and financing alternatives besides savings and loans are still scarce. The bond market is growing rapidly, but is still under-developed in terms of structure, distribution channels and size. In 2007, for example, about 99% of bond-trading accounted for the inter-bank market.
Dealing in stocks has been a controversial topic in China for ideological and political reasons. An increasing number of actors, however, see capital procurement through stock markets as an attractive alternative to credit. For corporate financing, as an investment alternative to savings book and real estate, and for the stability of the Chinese economy, the further development of the capital market is crucial. We work together with the Tianjin Property Rights Exchange (TPRE) to help develop transparent and effective property-rights exchange mechanisms. This widens the scope of financial sources, especially for small and medium sized enterprises, which have no opportunity in acquiring capital on the two domestic stock exchanges, and thus helps to stabilize the Chinese capital market. For more information on our activities in this field, please visit our detailed project description: Asset and Equity Market Reform
Sino-German Cooperation in Market Integrity and Investor Protection
In response to the financial & economic crisis and the G20 Declaration and the Action Plan, the Financial Sector Development Programme GTZ China is in the process of setting up a new project in Investor Protection in China tackling such important issues in securities market as regulation, supervision, transparency, market integrity and international cooperation between China and Germany. Chinese Securities Regulatory Commission (CSRC) will be the main project partner represented by the International Department while relevant institutions like the China Securities Association (CSA), the Securities Investor Protection Fund (SIPF) etc are included in the partnership structure.
The Project will be formalized soon with the Chinese partner to obtain a clear objective of enhancing the regulation and market integrity in order to effectively protect securities investors, in particular, the retail investors and empower them to make informed investment decisions when purchasing investment products and services. Moreover, a strategic dialogue between China and Germany will be established aiming to facilitate the cross-country collaboration in securities market. Inevitably, various German partners will be integrated including the BaFIN, the Association of German Private Banks etc.