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China Financial Research: A review and synthesis
Kam C. Chan, Hung-Gay Fung, Samanta Thapa
International Review of Economics and Finance | Feb 2006 | Pages: 416-428
The financial issues in China can be characterized by six major points:
1. Heavy government regulations: affecting the price of financial assets
2. Conflict between major and minor shareholders: corporate governance issue
3. Bank-based economy: as opposed to stock-exchange based in developed countries
4. Interaction between financial and goods market: typical to emerging markets
5. New innovations and instruments: opportunity for market players
6. Globalization: integration with the local financial market
• B-share and H-share typically trade at a discount to their A-share counterparts although they have the same dividend and voting rights. This discount effect in China is contrary to the experience in other countries, where foreign shares typically trade at a premium.
• The relationships in each market (A-share / B-share) are becoming more similar over time, suggesting a trend towards integration.
• Chinese firms prefer equity financing to debt, because China’s bond market is still underdeveloped and state owned Chinese banks are stretched thin to provide long-term loans. Firms seem to consider equity source as ‘free’ financing because there is no adequate legal enforcement system to protect individual investors.
• The privatization process occurs through a share issuing process.
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