Introduction to Current Issues and Development of the Chinese Capital Market

Abstract

The influence of the recent credit crisis and excess risk taking by banks on the well-being of the wider economy on a global scale provides a stark reminder of the importance of the capital market and corporate governance to modern capitalist economy. A well functioning capital market seeks to promote the efficient allocation of financial resources from capital providers to the funding of growth opportunities. An effective corporate governance system seeks to prevent expropriation and maintain the confidence of capital providers, in order to maintain their supply of financial resources to firms. Although the Western developed countries have well-established capital market and corporate governance systems, such countries lack the growth opportunities characterizing China and other emerging economies. As such, while Western developed economies struggle in recent years through the financial crisis and austerity, the focus of the global economy is increasingly transferred toward China and emerging countries. Nevertheless, despite their high growth prospects, emerging economies like China often lack the sound capital market and corporate governance system necessary to optimize their development and growth potential. Therefore, as China and other emerging countries increase their economic prominence, the development of their capital market and corporate governance becomes an increasingly important issue that is attracting the attention of academics, practitioners, and policy makers.