The Current Status of China's Capital Market

2008/4/1 15:59:39

In a mature market economy, the central position belongs to the capital market. Any ripple in the capital market is a matter of national significance. Look at the subprime crisis—the actual decline in the U.S. stock market wasn't even that large, not even 20%. Yet it mobilized the entire ruling establishment and opposition alike, throwing every financial, fiscal, and governmental resource at stabilizing the capital market. Why does the capital market hold such a pivotal position in the United States and all mature Western market economies? Because it is the core of their economic structure, representing the interests of the vast majority of people. In other words, these mature market economies have evolved to such a degree that the economic interests of the overwhelming majority of citizens are closely tied to the capital market. And since the economic base determines the superstructure, naturally no government institution dares show the slightest negligence toward the capital market.

But now, China's capital market is far from achieving such status, because China's market economy is still at an extremely underdeveloped stage. The capital market can be said to be merely decorative for the time being—in essence, it holds no real position within the economic structure.

This is because in China today, only the interests of the so-called middle class and above are linked to the capital market. The majority of Chinese people currently have no connection to the capital market, and they represent an economic structure that is relatively detached from the market economy. In the overall orientation of national economic interests, sacrificing the few for the many is obviously the most adopted choice.

Therefore, for example, in the current dilemma between CPI and GDP, the suppression of asset prices is mistakenly considered by some to be a good tool for suppressing CPI. Consequently, sacrificing the capital market becomes the most logical economic choice under this framework.

One can assert with certainty: until the middle class and above constitute the largest portion of the population, this bias in interests will be unavoidable. Without a clear understanding of this, not only will one be confused by many uniquely Chinese economic phenomena, but it will also have a significant impact on one's own trading operations.

Furthermore, according to the principle of a service-oriented government, the regulatory institutions of the capital market are essentially servants of the market. But at the present stage, they clearly fall far short of such requirements. Otherwise, for example, the Ping An incident would not have dragged on for months with no resolution. For a service-oriented institution, this is an obvious case of dereliction of duty and should be subject to corresponding supervision, correction, and even punishment.

See through the essence, and only then will you have true power.