Chinese capital market (equity fragmentation and liquidity transformation)

Author: Wu Xiaoqiu (Main Author)
Publisher:
Publish Date: 2004-01-01
Features: From a structural and functional perspective, China's capital market has long been in an abnormal state. This structural and functional abnormality was initially masked by the rapid scale expansion of the market. In recent years, with the market-oriented reform and internationalization process of the capital market, this imbalance in structure and function, which was hidden by the simple scale expansion in the early stages of market development, is becoming increasingly apparent and has become the main obstacle to the development of China's capital market. The structural and functional imbalance or abnormality in China's capital market has a fundamental institutional cause: the fragmentation of equity liquidity, where the two types of equity held by non-tradable shareholders and tradable shareholders are heterogeneous in terms of liquidity. Regarding the fragmentation of equity liquidity, it is necessary to acknowledge its historical inevitability on one hand, while on the other hand, it is essential to deeply recognize the severe institutional barriers this phenomenon imposes on the development of the capital market. To establish a fair and predictable institutional foundation for China's capital market, creating a market with good liquidity and a market-oriented platform requires only advancing the transformation of equity liquidity, constructing a fully tradable market, and establishing an equity structure with aligned interests.