Limitations of China’s Capital Markets

A large gap exists between China’s economic growth and the maturity of its capital markets

Current problems include:

Equity Market

• Relatively weak recent demand for IPOs
• Legal and reporting issues make direct investment in Chinese equities risky for overseas investors
• Large overhang of state-owned shares
• Protracted ban on domestic listings

Debt Market

• Overwhelmingly dominated by securities issued by government and publicly controlled ‘policy banks’
• Government’s direct use of quantity and price controls inhibits development of the domestic bond market
• Lack of attractive alternatives forces China’s huge private savings to languish in low-yield savings accounts