ABSTRACT
Despite the initial notion that capital markets – seen as core institutions of a capitalist market economy – inherently contradict the socialist nature of China’s economic order, they have gained both considerable size and significance over the course of economic reforms. Starting in the early 1990s, the Chinese stock markets saw feverish expansion and have developed into substantial mechanisms for allocating capital in China’s transforming and rapidly growing economy. Yet, with state-owned enterprises continuing to be the main issuers of securities, most large financial institutions being state-owned, and the strong role of regulatory organizations persisting, the Chinese capital markets remain caught halfway between industrial policy and systematic financial market development. Due to these factors and the underlying extensive control of China’s Communist Party (CCP), China’s capital markets display a distinct political economy. Many have argued that they are a vital component not only of China’s reforming economy but also of political rule, as they stabilize existing coalitions of power and distribution, mainly in favour of state-owned enterprises (SOEs).
