Advertisement

What Does History Tell Us? The Roots of China’s Modern Stock Market

  • Eric Girardin
  • Zhenya Liu
Chapter

Abstract

An understanding of many, somewhat surprising, features of China’s modern stock market and company organization requires a deep historical perspective on traditions dating back to imperial China. We will look at the form in which the corporation arose early on in imperial China in order to identify examples of well-functioning shareholding enterprises, understand the specific nature of contracting relationships, and explore the antecedents of sophisticated financial markets.

After its emergence in the late 1860s, China’s first stock market developed its own specific features which are still relevant, sometimes in a mirrored way, for China’s modern stock market. Domestic issuers and investors were not treated on equal terms with foreign ones. The market was characterized by durable speculative or bearish episodes badly damaging the trust of investors. During the post-1911 period, bearish phases were frequent and the government was quite often involved, in particular, to set up or discontinue exchanges.

In the wake of the deep reforms of the late 1970s and early 1980s, the re-emergence of share issuance and trading was active, rather spontaneous and somewhat hectic. It initially corresponded with the decentralized nature of industrial expansion during that period which took the form of a shareholding cooperative system for collective and small state-owned enterprises. There was no formal exchange but unregulated private placements. The landmark industrial reforms of the mid 1980s gave a decisive impetus to the restructuring of some enterprises into shareholding companies. There were some unregulated exchanges in large cities but transactions were mainly over-the-counter in a myriad of localities, leading to a highly speculative market.

The design of China’s modern stock market deliberately or unconsciously built on lessons drawn from the first Chinese stock market in three dimensions. First, the speculative character is a common feature, with the domination of individual investors for whom fundamentals do not play a major role. Second, the use of capital markets to provide financing to the government and state-controlled firms is shared between the old and the new markets. Third, incompleteness of the market is still present but for opposite reasons; it is a market dominated by domestic issuers and investors as opposed to earlier foreign dominance.

Keywords

History Government intervention Chinese culture Phoenix market Stock market’s origins 

References

  1. Bai, L. 2000. Historical Study of Shanghai Stock Market 1937–49. Nankai University Journal 4: 49–55.Google Scholar
  2. Chen, Z. 2006. Stock Market in China’s Modernization Process: Its Past, Present and Future Prospects. Working Paper, Yale School of Management.Google Scholar
  3. Cheng, J., and W. Zhu. 2006. China Stock Market Involution: 1873–1949. Economics Research Journal 12: 114–123.Google Scholar
  4. Faure, D. 2006. China and Capitalism: A History of Business Enterprise in Modern China. Hong Kong: Hong Kong University Press.Google Scholar
  5. ———. 2007. Emperor and Ancestor: State and Lineage in South China. Stanford, CA: Stanford University Press.CrossRefGoogle Scholar
  6. Fei, X. 1992. From the Soil: The Foundations of Chinese Society. University of California Press.Google Scholar
  7. Feuerwerker, A. 1958. China’s Early Industrialization: Sheng Hsuan-Huai (1844–1916) and Mandarin Enterprise. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  8. Geisst, C.R. 1997. Wall Street: A History. Oxford: Oxford University Press.Google Scholar
  9. Gernet, J. 1996. A History of Chinese Civilization. Cambridge: Cambridge University Press.Google Scholar
  10. Girardin, E. 1997. Banking Sector Reform and Credit Control in China. Paris: Development Centre Studies, OECD Development Centre.Google Scholar
  11. Goetzman, W.N. 2016. Money Changes Everything: How Finance Made Civilization Possible. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
  12. Goetzman, W., A. Ukhov, and N. Zhu. 2007. China and the World Financial Markets: Modern Lessons from Historical Globalization. Economic History Review 60 (2): 267–312.CrossRefGoogle Scholar
  13. Greif, A., and G. Tabellini. 2010. Cultural and Institutional Bifurcation: China and Europe Compared. American Economic Review, Papers and Proceedings 100 (2): 135–140.CrossRefGoogle Scholar
  14. ———. 2017. The Clan and the Corporation: Sustaining Cooperation in China and Europe. Journal of Comparative Economics 45 (1): 1–35.CrossRefGoogle Scholar
  15. Hansen, V. 1995. Negotiating Daily Life in Traditional China: How Ordinary People Used Contracts, 600–1400. New Haven, CT: Yale University Press.Google Scholar
  16. Ho, P. 1954. The Salt Merchants of Yang-Chou: A Study of Commercial Capitalism in Eighteenth-Century China. Harvard Journal of Asiatic Studies 17 (1/2): 130–168.CrossRefGoogle Scholar
  17. Murphy, A.L. 2009. The Origins of English Financial Markets: Investment and Speculation before the South Sea Bubble. Cambridge: Cambridge University Press.Google Scholar
  18. Pomeranz, K. 1997. “Traditional” Chinese Business Forms Revisited: Family, Firm, and Financing in the History of the Yutang Company of Jining, 1779–1956. Late Imperial China 18: 1–38.CrossRefGoogle Scholar
  19. Puk, W.-K. 2016. The Rise and Fall of a Public Debt Market in 16th-Century China: The Story of the Ming Salt Certificate. Leiden: Brill.CrossRefGoogle Scholar
  20. Rowe, W.T. 2009. China’s Last Empire: The Great Qing. Cambridge, MA: Harvard University Press.Google Scholar
  21. Ruskola, T. 2000. Conceptualizing Corporations and Kinship: Comparative Law and Development Theory in a Chinese Perspective. Stanford Law Review 52: 1599–1729.CrossRefGoogle Scholar
  22. Thomas, A.W. 2001. Western Capitalism in China: A History of the Shanghai Stock Exchange. Aldershot: Ashgate.Google Scholar
  23. Walter, C.A., and F.J.T. Howie. 2001. To Get Rich is Glorious’: China’s Stock Markets in the ‘80s and ‘90s. Basingstoke: Palgrave.CrossRefGoogle Scholar
  24. Yang, Z. 2006. Corporations and Corporate Governance in Late Qing. Beijing: Commercial Press.Google Scholar
  25. Zelin, M. 2005. The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China. New York: Columbia University Press.Google Scholar
  26. ———. 2009. The Firm in Early Modern China. Journal of Economic Behaviour and Organization 71: 623–637.CrossRefGoogle Scholar
  27. Zhu, Y. 1998. Three Stock Market Upsurge in Modern Shanghai Securities Market. China Economic History Studies 3: 58–70.Google Scholar
  28. ———. 2006. China Securities Markets: 1918–1937. Fudan University Journal 2: 74–85.Google Scholar

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Eric Girardin
    • 1
  • Zhenya Liu
    • 1
    • 2
  1. 1.Aix-Marseille UniversityMarseilleFrance
  2. 2.Renmin University of ChinaBeijingChina

Personalised recommendations