China Stock Exchange

No other stock market can match its potential, yet it lags a long way behind. The Shanghai Stock Exchange (SSE) has been in operation for over a decade, but is yet to match the awesome reputation of the national economy, and that of its host city. Most international investors prefer to route their funds through Hong Kong. Those who have experimented with the SSE, rarely report positive experiences. So what ails the mainland China stock market system?

An overbearing government is a primary hurdle for the developing stock market structure in China. The best exchanges operate independently, with transparent controls, clear accountability, and professional management teams. Many Chinese members of the country’s stock market are directly controlled by arms of the military regime in Beijing. This is hardly likely to inspire confidence in the investing community, though the rulers have shown commercial acumen in matters such as exchange rates and international policies.

The absence of an effective and fair legal system is another deterrent for foreign participation in the Chinese stock market infrastructure. Reports of ad-hoc approaches to dispute resolution abound, and one is never sure of any effective recourse available against malfeasance by local citizens. Part of this issue may relate to Taiwan which is a key investor in main land China, though the two nations have a continuing history of political confrontation and endless strife.

The SSE has just about a thousand members, which is very small considering the dimensions of the Chinese economy. The local stock market authorities claim that many domestic enterprises have raised capital and gained in many ways by listing, but their regulation seems to be hazy to outsiders.

Reform is high on the agenda in China, and hence the long term potential of the stock market remains attractive for international investing communities. Developments with respect to the spread of the Internet in the country, and to how foreign companies are treated in general, are watched with keen interest all around the world. There is no doubt that a stable and consistent policy towards foreign investment has enormous potential for every stock market in China, and that the SSE will be a first and main beneficiary.

 

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