ABSTRACT
After the communist party created the Peoples’ Republic of China (China) in 1949, China’s authority closed all stock exchanges and securities firms in two years. Form then on until 1977, ‘socialist ideology’ strictly dominated policies in the the country. The issuing and trading of stocks were prohibited owing to the Chinese government’s fear of private ownership and dividends coming from ‘capital’, rather than from ‘work’. Since 1978, however, China has executed economic reforms, designed to strengthen China’s economy by transforming the centrally-planned economy into a market-oriented economy. The economic reforms initially created unprecedented economic prosperity. However, the partial reforms could not sustain economic development indefinitely. The period of economic expansion was dampened by budgetary deficits, scarceness of capital supply and inefficient operation of state-owned enterprises (SOEs). Under these circumstances, China’s government permitted the issues of bonds and stocks, attempting to replenish the capital deficits and improve the efficiency of the SOEs.
