Market Failure With China's Securities Market Supervision

Almost 20 years after its start, China` s securities market has already been rooted in the whole economy of China. However, it failed to play the key role in the economic structure. The reason lies in not only the improper operation of the economic system to some extent, but also the problems of the securities market itself. To keep operation of the securities market efficiently and healthy,supervision is to be relied on.This thesis is written in order to find out how to better China` s securities market supervision as a response to market failures. As far as the neoclassical economics is concerned, supervision, which is something against the "good" market, is necessary because of market failures. This is still true in securities market as well as in financial markets. Then comes to the question: How to supervise? Nowadays the mature securities markets have given three different answers that are the result of different conditions they encountered respectively. As for China, market failures in a new emerging and uncompleted market economy are brought about by a special factor—policy interference, which was a choice with the restriction of China` s securities market supervision: the dilemma between developing and correcting. Proper choice of supervision system should be made with this restriction.To be more detailed, the thesis is composed of and four chapters: In Chapter One, the author begins with the basic idea of modern economics, which holds that "supervision" is something against the market that is proved "good" in the theory of general equilibrium. Here comes the question: Is supervision necessary? As far as the neoclassical economics is concerned, supervision is necessary because of four types of market failure: monopolistic practice, externalities, public goods and imperfect information. Furthermore, in financial markets, market failures have been found out mostly lying in two aspects: systematic risk and failure of information. In the securities market, imperfect information is found to be the key of all market failures.Chapter Two lays out three typical securities market supervision systems: the system of unification and legislation, the self-regulating system and the eclectic ones between the above two. Having grown in different countries with different economic and social situation, and also different cultural traditions. These systems have their respective characteristics. In Chapter Three, to find out the springhead of the problem, the history of China` s securities market and supervision on it have been reviewed. Then, the thesis discusses market failures and so called "non-market failure" in China` s securities market, which are attributed to policy interference as far as the author is concerned. Finally, the author argued that policy interference is a choice of supervision with some certain restrictions——the dilemma between developing and correcting.In Chapter Four, the author tries to make it clear that which supervision system is suitable for China` s securities market with the given restrictions mentioned in Chapter Three. The conclusion is: to better the supervision on China` s securities market, not only improve it with the restriction but also try to release the restriction, in the short run, the system of unification and legislation should be strengthened in China` s securities market supervision; in the long run, more self-regulation should be applied to help the system of unification and legislation.This thesis may be regarded as constructive in two aspects mainly:Firstly, trying to look into market failure in China` s securities market, the author` s effort is much more than describing only. In fact, more emphasis is put on the springhead of market failures——policy interference. Then the author continues to argue that policy interference is a choice of supervision on China` s securities market with a certain restriction: the dilemma between developing and correcting, which also restricts the effort to improve China` s securities...