The Comparative Relations Of China And The Chinese Financial Market

China has seen massive economic growth in the past few decades. Since its reopening in the 1970s, the country has begun trading and buying foreign currencies with western nations like the United States. When the housing crisis which began to unravel in 2007 really hit the American economy hard, China was more than happy to step in and put up funding to help keep the American economy, one of its biggest customers, in a delicate balance. Unfortunately, the American economy has been incredibly slow to recover from the last major recession. As such, it has increased its dependence on Chinese funding to back American debt.

In order to study how stock prices react to these events, approximate three years of continuous daily stock price are chose, beginning at 17th March 2008 and ending more than three months after the final event at 22nd April 2011. In addition, SHANGHAI Stock Exchange Index (SSE) is adopted as a proxy of the market portfolio.

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

2008 financial crisis caused severe trauma on the world economy, although the economy of China grew moderately, China 's financial system is very fragile, the financial laws and regulations are deficient, the structure of foreign change reserve is very risky, because China has huge foreign exchange reserve of US dollar, which makes China also suffer from the financial crisis. Financial crisis is caused by the American subprime mortgage, to combat the financial crisis, the United States issued a substantial amount of U.S. dollars, which makes the U.S. dollar depreciate continuously, and this action makes many countries that have great amount of foreign exchange reserves in U.S. dollars suffer huge losses. China has the largest foreign exchange reserves in the world, in 2008, China’s foreign exchange reserves had reached $ 2 trillion, the continues devaluation of the U.S. dollar make China suffered a lot, thus the international capital system based on U.S. dollars has been questioned, China and other countries that also hold a huge amount of U.S. dollars started to build a new international capital structure. In 2011, China, Japan

The monetary policies of USA and China is analyzed here from the perspective of their implementing bodies, their choice of instruments, and their means of setting their interest rates. The analysis reveals that there are immense differences between the two countries resulting from the nature and degree of influence from their respective domestic political systems. The paper

China’s banking system is mainly run and operated by the People’s Bank of China (PBC). The People’s Bank of China Operates as the overarching authority through out China’s banking system (1). At the start of the early 1980’s china began to branch out the PBC’s power by creating four centralized banks. These four banks were known as the Industrial & Commercial Bank, China Construction Bank, Bank of China and Agricultural Bank of China (1). Over time China has continued to integrate more and more free market aspects into it’s economy. China has continued to allow many joint stock commercial banks and more then a hundred city banks to conduct business with in it’s country. International banks are also allowed to establish branches with in China and are also allowed invest in state owned banking institutions (2)..

Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent

When the economic bubble burst in 2008, it affected the U.S. economy. The US went through a recession and struggled to find growth again for several years. China suffered few impacts and its economy continued to grow steadily until recently. China owns approximately $1.3 trillion of the US’s debt. It is the largest foreign owner of U.S. debt. (Long, 2016). If China’s economy were to falter and it wanted to cash in on that debt, it could cause grave economic consequences for the US. China owning a significant portion of U.S. debt allows China to subtly

In the 1990’s, there was around 100,000 state owned enterprises (SOE) in China and over half of them were losing money. Since 1992, most of the SOEs were given freedom to reform and extensive new investment was required for the action. IPO is one of the effective channels to raise capital in the market. Beside the Shanghai Stock Exchange and the Shenzhen Stock Exchange, SOE also sought listing out of the PRC and Hong Kong became their first destination.

While the Chinese economy is booming at the moment, it is far from stable. Any economy that experiences growth like China has will be more vulnerable to global economic conditions, and the developing nature of China's market means this is even more of a truth. Questions about the long-term stability and viability of the Communist regime will always top the list of risks of doing business in China, but there are specific problems with the banking sector that concern Citibank. The legacy of policy banking has created an environment that lacks a culture of lending accountability. Currently Citigroup is not doing well in dealing with the following issues.

The graph describes the foreign exchange reserves in China which expressed a dramatic increase between 1985 and 2006. Due to the Chinese economy development, an increasing number of foreign investments are keen to enter the Chinese capital market. Moreover, a significant number of Chinese corporations would gain more opportunities to cooperate with foreign companies and learn from each other. It also provides them enough foreign capital to invest in the international markets. But a large amount of foreign capital holding flow into China that may pose threat to domestic companies, namely the foreign companies may rob the domestic companies’ market share for their future development. So the Chinese government may consider building a security limitation of foreign exchange reserves.

One of the reasons is that Chinese IPO markets are known to be extremely underpriced and as a result China ranks first among 45 countries with respect to IPO underpricing. Guo et al. (2011) also suggested that there is a great number of optimistic investors waiting for high initial-day returns despise the greatly reduced potential benefit from IPOs, nevertheless they are still thought to be highly profitable. Lastly, during the last decade or so the IPO market in China has developed and maintained a good track record for profits. Consequently, the China example is encouraging to support the investors’ desire to launch XYZ Construction, Inc. IPO, which as aforementioned may very well benefit from an underpriced IPO market. Additionally, it is prudent to point out that there are expenses associated with an IPO yet these are worth in the long run. As suggested by Booth (2011.) “Underpricing comes at the expense of the original owners and venture capitalists of the issuing firm” (Booth, 2011, p. 4). However, there is a general tendency that investors do not sell their shares after the lockup period expires, nevertheless, underpricing will be considered a predictable cost of going public (Booth, 2011). Lastly, XYZ Construction, Inc. stakeholders should realize encouraging results as capital is generated while simultaneously growing the market capital in both domestic and international markets.

There has always been a persistent hustle between reality and its abstractions. Seldom do we find that a model aimed at capturing a portion of reality has provided both accurate and consistent results. Such a friction between reality and a proposed model of it can also be found in the case of China’s credit policy. The People’s Bank of China (PBoC) fixed the exchange rate of the yuan to the US dollar in the middle of the 1990s. In spite of the currency turmoil and depreciation during the Asian crisis, the Yuan Renminbi (RMB) was held at 8.28 to a dollar although there was a 50% depreciation. After 2005 the RMB exchange rate was only allowed to appreciate on tiptoes at 5% a year to the dollar before the Great Financial Crisis

The Peoples Republic of China’s economy is now the second largest in the world with an estimated gross domestic product of $9.24 trillion USD (China, 2014). This is the result of a strict economic reform policy put into place in 1978, which removed emphasis on the agricultural sector and moved to the energy intensive sector of manufacturing. The growing demand for energy often came in the form of highly polluting coal-fired power plants, but in 1992 the Three Gorges Dam was approved with construction beginning in 1994. The world’s largest dam was intended to produce power economically, reduce environmental impacts, and help to prevent floods downstream. However, the Three Gorges Dam is often seen as highly controversial due to foreseen and unforeseen problems that have arisen following its completion in 2012 (Jackson and Sleigh, 2000). The dam may be one of China’s largest environmental oversights and social failure in recent years.

Numerous myths encompass the financial connection between the United States and China. Four, specifically, emerge, and it is essential to recognize them as myths to maintain a strategic distance from misconceptions that could antagonistically impact strategy choices. The way that China has turned into the biggest remote holder of U.S. government securities is taken as demonstrating that the United States is intensely reliant on China to fund its spending shortages. Also, since China is a noteworthy hotspot for U.S. imports, U.S. customers are viewed as subject to modest Chinese merchandise. Moreover, the Chinese experts have underscored that they emphatically oppose outside weights to endeavor to impact arrangement choices and that