The Split Share Structure Reform Of China's Stock Market

The non-tradable shares reform is the most important reform in the history of China stock market. Before that, China's stock market was functioning with market participants' behaviors distorted and the market development could not match up with rising demand associated with economy growth. On April 29, 2005, CSRC launched the non-tradable shares reform, aiming at consistent interest among different parties (i.e. tradabie shareholders and non-tradable shareholders), hence to promote healthier development of the market.Since the non-tradable shares reform, stock market index surged in 2006 -2007. Unfortunately, it was followed by an unprecedented plunge in 2008. During the bull market, most comments were positive on the non-tradable shares reform, which became the best way to solve all the existing problems. However, the comments turned all negative in the bear market, when the Reform is deemed as the primary reason for the market decline.This paper aims to provide a more objective discussion on impact of the non-tradable shares reform, with analysis on basic function of stock market and participants' behaviors before and after the Reform. The conclusions include: (1) it is positive to achieve better functioning of the stock market from a macro point of view, while the market volatility was mostly driven by macroeconomic trends, supply-demand changes of capital and speculation activities in the market, etc.; (2) and it has neutral impact on market players' behavior.The goal of the non-tradable shares reform is to promote steady development of stock market. This paper also tries to provide some suggestions with respect to improvement in policy framework in stock market, enhancing supervision on market players, strengthening non-tradable shares information disclosure, etc., given that China stock market is still underlined with certain deficiencies.