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Privatizing China: The Stock Markets and their Role in Corporate Reform

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Carl Walter and Fraser Howie's 2003 book Privatizing China: The Stock Markets and their Role in Corporate Reform is both a meticulous account of the previous 20 years of development in China's equity markets and a reasoned reflection on the philosophical nature of securitization in a post-socialist transition economy. The book relies upon extensive primary research - including interviews with high-level Party officials, a review of the multitude of relevant laws and regulations enacted during the previous two decades, and an assessment of market metrics from various official and unofficial sources - and adds proprietary analysis of the political, social, and economic considerations behind such developments. The book concludes with speculation on the future direction of equity markets in China. In short, while difficulties related to the presence of non-tradable shares, insufficient regulation, and low contestability remain central features of the Chinese experience, the authors predict continued expansion "with Chinese characteristics."

Walter and Howie present a relatively simple yet compelling explanation of the forces driving market development. The first, demand from township and village enterprises for capital, developed in the late 1970s and early 1980s as fiscal reform limited the amount of revenue available from the central government. The Party, meanwhile, allowed limited development of securities markets because it was both economically beneficial and channeled in such a way as to avoid full privatization. Potentially destabilizing corporate reform, at least at the time of the book's publication in 2003, had largely been avoided through the creation of two parallel markets, one with tradable and the other with non-tradable shares. Walter and Howie's book concludes by noting the difficulties and contradictions of these dual markets, and suggests that further reform is necessary should the government hope to see continued expansion. These pressures ultimately resulted in G share reform in 2005, a subjected treated at length in the authors' 2006 update to this edition.