China's Financial Market Fragmentation, 1978-2004

Li, Jia (2006): China's Financial Market Fragmentation, 1978-2004. Published in: Forum of International Development Studies , Vol. 32, (December 2006): pp. 115-135.

Abstract

This paper empirically examines the emergence of financial market fragmentation in China after 1978-reform. It argues that the emergence of financial market fragmentation in China after 1978 is inherent in two salient features of Chinese economic reform, namely, decentralization and gradualism. The low capital mobility between different market segments is largely attributable to the distortions in the financial system generated by the initiatives of local governments. Using provincial loans and deposits data, this paper found that the mobility of financial capital has been actually low across Chinese provinces in the reform period. In addition, financial market fragmentation as assessed by provincial loan-deposit correlation is a new phenomenon emerged since the mid-1980s. Also, the loan-deposit correlation has been significantly influenced by the local fiscal policies and the size of state-owned sector.

• Item Type: MPRA Paper
• Language: English
• Keywords: China; financial development; Feldstein-Horioka test
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C21 - Cross-Sectional Models ; Spatial Models ; Treatment Effect Models ; Quantile Regressions; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P34 - Financial Economics

References

Feldstein, Martin and Charles Horioka. 1980. Domestic Saving and International Capital Flows. The Economic Journal. Vol. 90 (358): 314-329.

Boyreau-Debray, Genevieve and Shan-Jin Wei. 2004. Can China Grow Faster? A Diagnosis on the Fragmentation of the Domestic Capital Market. IMF Working Paper, No. 04/76.