ECON 455 Lecture17 Integration of markets- capital market

ECON 455 Lecture17 Integration of markets- capital market -...

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1 1 Econ455: Economic Development in China Lecture 17: March 19 Integration of markets: capital market Sandra Poncet Lorch Hall, room 207 Email: sponcet@umich.edu Office Hours: 2 Introduction The issue of market integration in China « A flexible and integrated domestic market is vital for broadening the basis of China’s competitiveness and growth, and for structural adjustment in the Chinese economy. A flexible and integrated market for goods and services, along with flexible entry and exit of firms, allows more productive firms to expand and exploit economies of scale, facilitates diffusion of technology, and stimulates productivity improvements that enhance competitiveness of firms across the national economy. » World Bank 2005 Topic will be addressed in 2 steps: -Today: capital market -Wednesday lecture 20: goods market integration
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2 3 Introduction Specificity of China’s finance and growth nexus “China is an important counterexample to the findings in the law, finance, and growth literature: neither its legal nor financial system is well developed by existing standards, yet it has one of the fastest growing economies.” It is therefore necessary to shed lights on how the Chinese financial system actually works in this case. The focus is on capital mobility and allocative efficiency 4 Lecture Outline Introduction I-The institutional context II-Analytical method of the capital market integration A-Direct test of capital mobility B-Capital flows distortions: efficiency C-Capital Marginal product study III-Expected benefits from better integration A-Expected benefits B-Political Implications Conclusion
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3 5 A-Dominance of the banking channel I-The institutional context Underdevelopment of the non-bank financial channel Overdevelopment of the banking channel…. 6 A-Dominance of the banking channel I-The institutional context …. that is largely organized around government-controlled entities. In 2003, 72% of assets from Big 4, 3 policy banks, rural credit coop.
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ECON 455 Lecture17 Integration of markets- capital market -...

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