Title: A Marriage of Capitalism and Socialism: The Case of China's Stock Market Development
Reference Number: 1123
Publication Date: April 2005
JEL Classifcation:

Sonia M.L. Wong
HK Institute of Economics and Business Strategy


This paper explains how China was able to develop a large, active, and technologically advanced stock market in the 1990s while still maintaining its salient socialistic institutions of state ownership and monopolistic control over financial intermediation and offering shareholders only weak legal protection. We argue that the marriage of socialism and capitalism that took place during the establishment of China's poorly regulated stock market has produced an arena for rent-seeking local governments and state-owned enterprises and a casino for speculators. We show how China's stock market development in the 1990s was driven primarily by rent-seeking and speculative activities rather than by value-driven transactions between investors and fund seekers.


Published in Cato Journal 26:3 (2006), pp. 389-424.

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Last modified: 01/25/2007