Law, Finance, and Financial Regulation in China

Law and Finance vs. Administrative Governance: The Case of China

• Chenggang Xu, LSE and Tsinghua University
• Based on
• Julan Du and Chenggang Xu, International Economic Association Round Table, 2005
• Katharina Pistor and Chenggang Xu, American Law and Economics Review, 2005

China vs. Law&Finance Literature

• General discoveries on law and finance:
• good law as necessary condition for financial development
• Better law in books (shareholder protection) (La Porta et al., 1997; 1998)
• Better law enforcement (Johnson et al., 2000; Pistor et al., 2000)
• Law and finance in China looks opposite
• Better financial performance than average transition economies
• Higher than average in market capitalization and market liquidity
• Substantially more IPOs and raised much more funds
• 873 IPOs in 1994-2001 (the best in other TEs: Poland: 47)
• much more than the total of the EE-FSU markets
• Raised 61.6 billion US$ from markets in 1998 and 2001
• much more than the total of the EE-FSU markets
• Worse law and enforcement:than average transition economies