International Securities Financing

China has been raising funds globally through securities since 1980s'. China issued the first foreign bond denominated by Japanese Yen in 1982 and the first H share in Hongkong Stock Exchange in 1993. In the past twenty years, through global capital financing we have accumulated large volume of funds to support the development of inland China.However, the effects of international financing are beyond accumulating funds. In macroeconomics, inflow of capital promotes the increase in economy in host country. On the other hand, inflow of capital adds to the foreign assets of central bank. As a consequence, supply of currency will increase if no opposite measurements are used. As for firms, theoretically, when firms enter internationally capital markets their weighted average capital costs will decrease. But firms will face foreign exchange exposure and interest rate exposure. In sum, when appraising the effects of global security financing, we should analyze revenues and costs of financing. This paper firstly reviews the history of China's international security financing and then analyze its effects on Chinese economy and firms. After these analyses, this paper provides some suggestions on the future development of our international financing.This paper consists of 5 chapters as follows:Chapter 1 gives the concept of international security financing and then introduces the two main methods of it, international debt financing and international equity financing. International security financing refers to the issue and purchase of international bonds and stocks. According to classic theory, international security investments are motivated by the difference of interest rates between two countries. Capitals in countries with lower interest rate purchase securities in countries with higher interest rate since the price of securities in countries with higher interest rate is lower compared with securities of the same expected rate of return in countries with lower interest rate. According to Portfolio theory of Markowitz, benefits of international financing lie in the reduction of systematically risk of investment.Debt financing and equity financing have divergent effects on firms. Due to Tax shield of debt, after-tax cost of debt is lower than stock with the same expected rate of return. However, debt financing is more vulnerable to foreign exchange exposure and interest rate exposure.Chapter 2 reviews the history of China's international financing. In the past we mainly issue international bonds in financial markets of Japan and United States. Issuers are limited to Chinese Government and financial institutions. After 1996, non-financial institutions began to enter international capital markets to issue bonds. China's debt financing was affected by Asia Financial Crisis. Currently government and state-owned commercial banks have reentered international capital markets.Chinese corporations issued B shares in domestic stock markets, H shares in Hongkong Stock Exchange, listed in NYSE through ADRs and list in NASDQE as venture investments. Initially, international investors welcome Chinese corporations. However, due to the low earnings, prices of Chinese stock dropped.Chapter 3 analyzes changes to capital cost of firms when firms enter international capital markets. According to theory of multinational business finance, firms could raise funds in international financial markets with lower cost. This paper selects 32 corporations issuing H shares, calculates the equity costs of H shares and then compares equity costs of H shares and equity costs of A shares of Chinese corporations. Contrary to theories, equity costs in domestic stock markets are much lower than those in international stock markets. However, we can not deny the contribution of global financing to Chinese economy. First, the irregularity of domestic capital markets is mainly responsible for the result. Because of the high price earning and low dividend, the equity costs of A shares are exceptionally low. The gap of equity co...