Securities Market Open Condition Research

The topic of conditions for capital market opening (or capital marketliberalization) is an economics topic with important theoretical and pragmaticvalue. There have been extensive debates over the benefits and costs of capitalmarket opening for a long while. In effect, finding the right conditions forcapital market opening is the core question for the costs and benefits debate. Intoday’s economy, capital market opening is very relevant as it relates to financialcrises that occurred often in recent years. Moreover, China is at the crossroad forfurther capital account opening. This paper is trying to answer the following keyquestions:1. Under what conditions, the benefits of capital market opening aremore than costs?2. Do conditions differ for different stages of capital marketopening?3. If yes, what are the conditions for each stage?There are five chapters in this paper. Chapter One is about the historicalanalysis conducted by overseas and domestic economists. It includes summariesof researches on both capital market opening and conditions for capital marketopening. Chapter Two is to construct the theoretical framework of this paper. Itfocuses on costs and benefits analysis as the key theme of the study, andidentifies all of the conditions that are needed to ensure benefits of capitalmarket opening are more than its costs. It also applies relevant economicstheories to support the analysis. Chapter Three is about the conditions for capitalmarket opening. It includes requirements for countries that can be applied to“CIRFI conditions” and “CIRFI Matrix”. It also divides opening process intofour stages, and match conditions with each corresponding stage. Chapter Fouris the empirical studies for countries that opened their capital markets. It selects7sample countries (or regions) and studies every country’s opening history,CIRFI Conditions, CIRFI Matrix, and effects of opening. Chapter Five is aboutChina, and includes China’s capital market opening history, development ofopening conditions and suggestions for future opening. It points out that Chinais currently at the critical point before Stage II–Speeding Stage. It alsopredicted that China will carry out further related reforms and liberalizations inthe next10years or so, and by the end of this period, China will be basicallyready to enter into the final stage of capital market opening, i.e. Stage IV: Basically All Open Stage.The major methods used in this paper include: normative analysis andempirical analysis, costs and benefits analysis, illustrative and comparativeanalysis, qualitative and quantitative analysis, static analysis and dynamicanalysis, etc.The major contributions and new findings of this paper include:First, it proposed “Surfing (CIRFI) Conditions” for capital market openingas the first time. The CIRFI conditions include:1. Opening of current accountand build up corporations’ international competitiveness and foreign exchangegenerating capacity(C).2. Rationale institutions with solid financial conditionsdominate the market (I).3. Regulators and regulation regimes aremarket-oriented and international-minded (R).4. Floating foreign exchangesystem (F).5. Liberalized interest rate system (I). The first letters of the keywords of these five conditions compose the word of “CIRFI”, which has apronunciation that is very similar to “Surfing”, and interestingly, the essence ofopening capital market is quite similar to surfing along seaside. Thus, I named“CIRFI” conditions as the proposed capital market opening conditions in thispaper.Second, this paper proposed “Surfing (CIRFI) Matrix” for different stagesof capital market opening as the first time. In this paper, I divide capital marketopening into4stages, i.e. I: Launching Stage; II Growth Stage; III SpeedingStage; IV Basically All Open Stage. The more it opens, the more conditions arerequired. To match the conditions with stages, this paper proposed “Surfing”Matrix, i.e. in Stage I, C condition is required; in Stage II, CI conditions arerequired; in Stage III, CIR conditions are required; and at the end, in Stage IV,all5conditions, i.e. CIRFI, are required.Third, it is the first time that “Surfing Conditions” and “Surfing Matrix” areapplied to China’s capital market opening. In this paper, by applying “Surfing”Matrix, I divide China’s capital market opening process into4stages, i.e. from1992-2002as Stage I,2002-2013as Stage II. Currently, China is at the turningpoint between Stage II and Stage III. Based on analysis from this paper, it isexpected that China will complete Stage III in the next10years or so, fulfillingall the5CIRFI conditions and then be ready to move into the final stage, Stage IV.Given the limited time and resources, I haven’t conducted empirical studiesfor all of the countries that opened capital markets in the world. I will do moreempirical studies in the future for this interesting topic.