An interesting article from the McKinsey Quarterly website on changes in China’s capital markets:
– When China first allowed private investment in state-owned enterprises, the government created a two-tier approach that, in its initial design, would let companies raise additional capital while retaining a high degree of supervision over their assets.
– Although this approach was successful at first, over time it did not facilitate a deepening of China’s capital markets and led to uncertainty about how the structure of ownership would be reformed—uncertainty that contributed to an almost five-year decline in the Shanghai stock market.
– New reforms put in motion in 2005 and 2006 will reach a milestone this year, with the elimination of the two-tier structure. The reforms spurred a massive rally in the stock market over the past year and a half. In the longer term, they have profound implications for mergers and acquisitions, equity markets, and corporate governance in China.
To read the full article click here.