Forced Institutional Change And Efficiency Of Chinese Capital Market

Since Shanghai Stock Exchange was founded in 1990, the history of normalized Chinese securities market is only 15 years. In order to push overall reform of Chinese economy, our government has directed the development of this top market architecture—property right exchange market with "trial and error" method in the past 15 years. During the process, the security market booms up. Now, it has about 1,400 listed companies, more than 3 trillion RMB market value. Over 30% Chinese economy has been securitized. The structure of financial system has been approved rapidly. The financial development and deepening has contributed much to Chinese economy system reform.However, Chinese stock market was founded and developed under the circumstance of co-existence of central planned economy system and market economy system. The Chinese stock market grows accompanied with distorts and defaults, so its system, function and efficiency is restrained by this strong background. The resource optimization has been distorted when this market is used to pay for and bear the risk of the reform. Nowadays, all problems which sourced from the system defaults break out suddenly. Issuing market and transaction market have slumped into extreme trouble. The development of Chinese securities market is hard to go further.The object of this paper is capital market in narrow sense and security market. It will overhaul and analyze development of Chinese securities market in these 15 years. The framework of this analysis is institutional economics and econometrics, the method is combined with standardization and demonstration. The main point of this paper is to analyze the characters of institutional changing, systematic disfigurement and economic efficiency of the market.The analysis frame is a matrix calculation of two vectors: one vector comprises of main participants in the market, including government (also local governments), enterprises (listed and intending to IPO), investors (institutions and residents), security business companies, foreign institutions who are gradually participating in the market, and so on; the other vector comprises of each market component, including issuing market, M&A market, second market and the oversea markets which have been interacting with domestic markets step by step. The consequence of the matrix calculation should have the convergences of the subsections and the overallsystem, which comes to our conclusion------on the background of "compulsiveinstitutional changing" dominated by the government, the whole economic efficiencyof Chinese security market is low, the reforming experience of the Chinese security is unsuccessful, so only market policy, liberalization and law can deal with it, the precondition of these measures is that the government returns to the judge role and should not favor any run body any longer.This paper analyzed the institutional change process of Chinese securities market beginning with document searching for Institutional change theory and capital market theory, the paper also pointed out that the system evolved from caused change to compulsive change, it focused on features and faults of Chinese securities market on the background of forced institutional change, the paper brought up the theory hypothesis; detected and demonstrated it through the efficiency of issuing market, M&A market, trading market and operating institution; after that it pointed out that Chinese securities market can't open to foreign investors in this time; and therefore the paper demonstrated the certain trend and probability of marketization and liberalization.The innovation of this paper lie on medium finance economics which analyzed the efficiency of securities market, on the other hand, they lie on synthetical use of economics research methods such as institutional analysis and quantitive test. The innovation also lie on emphasis of the background of forced institutional changing, on logical demonstration of the government policies directed to securities market liberalization and internationalization. The paper put forward policies and suggestions on the basis of fully considering of Chinese situation. It is popular in foreign academic research in macro economy and micro securities market, but there are few documents which demonstrating efficiency of securities market from medium view. It is prudent to say that this paper fills the blank of economics research, and it also provides a timely research work and theoretical direction to Chinese securities market reform.