The Dual Role of China’s Stock Market: Capital Allocator and Platform for Global Diversification
— August 9, 2017
By Jennifer Carpenter and Robert Whitelaw
These issues are obviously of critical importance to China and to those thinking of investing there; however, a number of developments over the last decade have made them an even broader concern. First, China’s GDP has more than tripled to over 11 trillion USD in 2016, on par with the United States in purchasing power terms, and it is the world’s largest contributor to global growth. Second, China’s stock market has grown more than five-fold to 7.5 trillion USD in market capitalization as of May 2017, and it has become the world’s second largest, while the number of stock listings has more than doubled to over 3,200. (See Figure 1, reproduced from Carpenter, Lu, and Whitelaw (2017), for a plot of the evolution of the number of firms traded (Panel A) and the market capitalization (Panel B) since the stock markets opened in the early 1990s.) Third, China has become the world's largest investor, with 5 trillion USD of total fixed asset investment in 2016. Fourth, the explosion of debt used to finance China’s post-crisis stimulus has raised concerns about the stability and efficiency of the financial system, making China’s stock market an important alternative financing channel.
Read the full article as published in VoxChina.
Jennifer Carpenter is an Associate Professor of Finance. Robert Whitelaw is the Edward C. Johnson 3D Professor of Entrepreneurial Finance.