1. This article does not discuss the relatively small, 100% privately-owned businesses in the free market. Taiwan's rapid post-war development was largely driven by small businesses, and a more complete discussion of “capitalism with Chinese characteristics” would give tremendous credit to the quarter of a million private Chinese enterprises said to exist by the end of 1993.

2. Kong, Min, Ye, Guiganget al. (eds), Zhongguo zhengquan jiaoyi daquan (Sourcebook on Chinese Securities and Exchanges) (Beijing: Jingguan Jiaoyu Publishing House, 1993)Google Scholar, esp. ch. 1.

3. Shanghai had a foreign-stock “trading house” (shanghao) by 1869 and a privately-run foreign stock market by 1891. A “stock association” had also formed in Hong Kong by 1891 (Xianggang gupiao jingji xiehui), and it reorganized as “the Hong Kong Stock Exchange” in 1914. But these early stock markets, opened in foreign-controlled territories and concessions, only sold stocks of foreign enterprises. Ibid.

4. Ibid. p. 19.

5. Ibid.; see also Lieu, D. K., The Growth and Industrialization of Shanghai (Shanghai: China Institute of Pacific Relations, 1936), pp. 140, 156–58.Google Scholar

6. Even without the Communists and the Japanese, the early stock markets were hampered by the following factors. Bureaucratic management by interventionist governments helped to limit the development of large, wholly private corporations. Even most private Chinese businesses ran on an ownership structure based on family ties. China's capitalist activity also for the most part was localized in large cities plagued by unstable governments and corrupt warlords. As a result, the Beijing stock market declined with the decline of the Beiyang government, and by the middle of the 1920s only Nationalist government bonds in Shanghai saw any real trade volume.

7. Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 22–25.

8. In 1950 the People's Republic issued a People's Victory Bond (renmin shengli zheshi gongzhai), and national economic construction bonds (guojia jingji jianshe gongzhai) were issued during each year of the First Five-Year Plan that began in 1954. Private industry and commerce purchased over half the victory bonds of 1950, but its share of bond purchases declined with the overall decline of the private sector. Several sources speculate that the bonds of the First Five-Year Plan may have been unpopular and an administrative burden at a time of low cash reserves among most sectors of the population. They were sold and purchased as a patriotic duty rather than as a primary means to raise and invest capital; this view would change in the 1980s and 1990s. More information on the value, sales and marketing of bond issues in the 1950s is contained in Ecklund, George N., Financing the Chinese Government Budget (Chicago: Aldine Publishing Co., 1966), pp. 86–90Google Scholar (chart, p. 87); Chen, Nai-Ruenn, Chinese Economic Statistics (Chicago: Aldine, 1967)Google Scholar, charts, pp. 444–45; Donnithorne, Audrey, China's Economic System (New York: Praeger, 1967), pp. 381–83Google Scholar; and Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 83, 97–99.

9. Short, historical reviews of the development of China's bond markets under Deng Xiaoping are contained in “Article predicts bright future for bond market,” Liaowang, No. 9 (28 February 1994), pp. 10–11, in Foreign Broadcast Information Service, Daily Report: China (hereafter FBIS), 30 March 1994, pp. 33–35; and Liu, Alan P. L., “The emergence of Chinese capital markets,” Asian Survey, Vol. 31, No. 5 (May 1991), pp. 409–421Google Scholar, esp. pp. 411–13.

10. In a more competitive market, the government has relied upon more diverse organizational structures to plan issues and market them. For details on the methods of selling and trading both government and company bonds, both on-board and off-board, see “‘Mailbox’ explains bond trading market,” Xinhua, 20 February 1994, in FBIS, 10 March 1994, p. 73. Foreign investment banks and brokerage houses are relied upon to boost confidence in bond sales abroad; Morgan Stanley and Merrill Lynch have each underwritten bond sales denominated in dollars in 1994. Other sales have been issued in national currencies; through underwriters in Europe, Japan and Hong Kong. A chronological list of the Bank of China's overseas bond sales, 1984–94, including their values and terms, is contained in Kan, Ren, “Bank of China preparing big bond issue in Japan,” China Daily Business Weekly, 10–16 April 1994, p. 1Google Scholar, in FBIS, 13 April 1994, pp. 25–26.

11. Sizhang, Gao, “Call for improved bond mart,” China Daily Business Weekly, 20 June 1994, p. 3.Google Scholar

12. Weiling, Liu, “Rules planned for T-bond futures mart,” China Daily Business Weekly, 20 June 1994, p. 1.Google Scholar

13. Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 125–26.

14. Ibid. p. 349.

15. Ibid. pp. 45–46.

16. Four estimates for 1991, more specifically, are listed with their sources: (1) 4,000; Jiang Ping, member of the Standing Committee of the National People's Congress, Professor and former President of the China University of Politics and Law (Beijing), expert on Chinese corporations law; interviewed 6 June 1993; (2) over 4,000; Xiao Zhuoji, Professor of Economics at Beijing University, expert on the Chinese bond markets and top advisor to Guandong Shantau special technological and developmental zone; interviewed 5 June 1993; (3) 4,750; Kong Min et al., Zhongguo zhengquan jiaoyi daquan, p. 211; and (4) over 6,000; ibid p. 27. In 1991, enterprises of all kinds had issued about 70 billion yuan in enterprise bonds and stocks, or 20% of the total (330 billion yuan) of all securities issued in China. Ibid. p. 45

17. Statistics quoted in (1) Wenhui bao, Hong Kong, 31 March 1994, p. A3, cited in “Shareholding reform reviewed,” China News Analysis, No. 1508 (15 April 1994), p. 4; (2) ‘Total of 13,000 joint-stock enterprises set up,” Zhongguo tongxun she, 25 February 1994, in FBIS, 17 March 1994, p. 49; (3) “Joint-stock businesses increase throughout nation,” Xinhua, 28 February 1994, in FBIS, 28 February 1994, p. 54.

18. Interview with Jiang Ping, 6 June 1993. The wide differences in estimates of the number of companies issuing stock suggests that many of these companies are acting without even informing the central government. It is unlikely that such companies follow other central i government regulations.

19. Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 141–42.

20. Schell, Orville and Lappin, Todd, “China plays the market,” The Nation, 14 December 1992, p. 728.Google Scholar

21. Ibid. p. 729.

22. Ibid. p. 727.

23. Chen, Kathy, “China province cracks down on kerb-side trading,” The Wall Street Journal Europe, 30–31 July 1993, p. 22.Google Scholar Reports suggest that some kerb-side trading centres may soon be legalized.

24. The two exchanges listed 263 stocks by the beginning of the third quarter of 1994. “China stock listing,” China Daily Business Weekly, 20 June 1994, p. 3; 3 January 1994, p. 2. Up-to-date details about securities can be culled from faded handouts published for private investors and sold outside branch offices of investment houses. In 1993 about half the companies listed in Shanghai were industrial enterprises, but financial enterprises and real estate enterprises are gaining a foothold in the market; public utilities and “comprehensive” (zonghe) enterprises are also traded. The future listing of enterprises, whether in the country or abroad, will reportedly be directed towards large and medium-sized enterprises in the energy, communications, transport and raw and processed materials sectors. “Shareholding reform reviewed,” China News Analysis, No. 1508 (15 April 1994), p. 4.

25. Information on Shanghai's Hewlett Packard computer is based upon an interview with a supervisor in charge of public relations at the Shangai Stock Exchange, May 1993; Shenzhen's computer is less powerful, matching a maximum of only 20 orders per second; see also “Shanghai ‘biggest’ stock and futures exchange,” Zhongguo gaige, No. 3 (13 March 1994), p. 58, in FBIS, 7 April 1994, pp. 24–25.

26. Soem Shanghai officials have campaigned to abolish all residency and passport restrictions on A and B shares, but central authorities are unlikely to permit changes until the yuan is fully convertible. “Beijing to expand B-share issues.” Xinhua, 12 May 1994, in FBIS, 12 May 1994, p. 36. Chinese enterprises have listed H shares in the U.S., Tokyo, London, Frankfurt, Singapore, Luxembourg, Ireland and Hong Kong. The Hong Kong exchange now permits primary listings for Mainland companies in yuan. Dividends are paid in foreign currency and, at the time of writing, the exchange rate matches that in the Shenzhen swap centre. Gareth Hewett, “Exchange opens door to primary listing in yuan,” south China Morning Post, 18 June 1993, Business, pp. 1–2.

27. A number of companies have listed corporate shares with the Securities Trading Automated Quotations System and National Electric Trading System, and electronic transactions are likely to becom more dominant in the near feature.

28. This is true in a brokerage house in Hangzhou, where 20,000 yuan customers (“capitalists”) are entitled to sit on leather chairs in a room that used to be a disco.

29. Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 349–350. Shanghai's Wanguo Securities also issues a Treasury Bond Index.

30. Kristof, Nicholas B., “Don't joke about this stock market,” New York Times, 9 May 1993Google Scholar, Section III, pp. 1, 6; “Securities figure discusses state of stock markets,” Xinhua, 13 May 1994, in FBIS, 18 May 1994, p. 67. The index remained low at the end of the second quarter of 1994. China Daily Business Weekly, 20 June 1994, p. 3.

31. Many of China's top accounting firms have relied on 70 and even 80-year-old accountants to update their books, because until very recently these were the only accountants with international, albeit pre-revolutionary, training and experience. Interview with Kelvin Chen, an internationally-trained Hong Kong accountant and office manager at Ernst & Young, Shanghai, 25 May 1993.

32. See Xiao-Lin Zhou, “Investing in China's emerging stock markets – a legal and regulatory overview,” International Business Lawyer, April 1993, p. 192.

33. Interview with Jiang Ping, 6 June 1993.

34. Interview with Xiao Zhuqji, 5 June 1993.

35. Theoretically investors are supposed to be able to select top officers and managers in a company, influence the annual report, discuss future investment, and so forth. Some shareholders’ meetings do contain significant debates about a company's future direction, according to Professor Xiao Zhuoji, who has attended meetings (interview, 5 June 1993; see also Chan, Christine, “Authorities move to regulate securities markets,” South China Morning Post (Business), 28 May 1994, p. 1Google Scholar); yet a Huadong University Professor of Politics and Law (who did not permit me to quote him by name, interview, May 1993), described a shareholders’ meeting he had attended as a “joke,” followed by a banquet. With few truly private shareholders qualifying for seats at shareholders’ meetings, it is difficult to measure their significance.

36. While there are no examples of “hostile takeovers” by outside enterprise managers or companies, there have been “friendly” mergers through stock acquisitions by outside bureaus and locally-managed companies. For a detailed example, see Kahn, Joseph, “Stock-market merger in China reflects shift from southern to northern markets,” The Wall Street Journal, 15 November 1993, p. A8.Google Scholar

37. Interviews with Xiao Zhuoji and Jiang Ping, 5 and 6 June 1993.

38. Beneath Zhu Rongji is Liu Hongru, China's Securities Commission chairman, who outlines his priorities for a healthy securities market, including both greater expansion of the size of the market and more sophisticated regulation, in “Official discusses securities market,” Xinhua, 12 September 1993, in FBIS, 23 September 1993, pp. 41–42. Liu has been faulted, perhaps unjustifiably, for the sluggish growth and performance of “B” stocks; yet at the time of writing, 1994 rumours of his imminent resignation have proven false. Since the Securities Regulatory Commission was established in October 1992, its authority has been challenged by local securities and central bank officials who had been primarily responsible for overseeing China's stock exchanges in Shanghai and Shenzhen. See Chen, Kathy, “China is drafting a securities law; plan is lauded, but doubts are raised,” The Wall Street Journal, 15 March 1993, p. B3A.Google Scholar

39. “Foreigners lose tax incentives as China opens,” International Herald Tribune, 19 July 1993, p. 9.

40. The government, more often than not, is cheated when companies issue new shares without assessing (the government's) initial assets. New regulations are designed to rectify the problem. “Regulations on converting state assets into shares,” Tongxun she, 25 April 1994, in FBIS, 12 May 1994, p. 34. Some reformers of corporate laws governing securities also fear that the thousands of poorly regulated Chinese limited stock corporations will provoke a crackdown on their own efforts, as they make expensive and ignorant mistakes in their rush to modernize. For example, some companies have offered investors illegally high dividends (sometimes over 20%; e.g. Great Wall Machinery and Electronics) that they could not pay; others have paid profit bonuses even when they registered losses; still others promise huge returns on stock issues to employees, assuming that, like many first-issue stocks, theirs will quickly soar in value when permitted on the market. When enterprises are not permitted on the market as hoped, misled employees demand promised returns from bankrupt companies, and incompetent company managers run to Beijing for more capital. These renegade corporations might also poison the market for securities, by providing improper or misleading information to public and private investors or by printing improper certificates that do not explain the rights and responsibilities of the shares bought and sold. Interview with Jiang Ping, 5 June 1993; Kong Min et al., Zhongguo zhengquan jiaoyi daquan, pp. 210–11; “Great Wall fraud investigation in final stage,” Xinhua News Dispatch, 6 October 1993, in FBIS, 7 October 1993, p. 16.

41. “Zhu Rongji's crackdown on banks reportedly ‘failed’,” Hong Kong Standard, 14 March 1994, p. 8, in FBIS, 17 March 1994, p. 48. In 1994, “China's legal authorities uncovered rampant stock market violations by brokers, bankers and even regulators.” Chan, “Authorities move to regulate securities.”

42. The National Administrative Bureau of State-owned Property would probably evaluate state-owned assets and shares. Weiling, Liu, “State acts to protect its shares,” China Daily Business Weekly, 27 March–2 April 1994, p. 3. A discussion of conflict of interest and corruption problems with new company securities is found inGoogle ScholarYipeng, Liu, “Major issues in the course of legislation for China's company law,” Jingji guanli (Economic Management) (Beijing), No. 8 (5 August 1993), pp. 29–31Google Scholar, in FBIS, 20 September 1993, pp. 44–47.

43. “Mergers increase in move toward market economy,” Xinhua, 24 February 1994, in FBIS, 25 February 1994, p. 36.

44. At the end of 1993, the total number of Chinese overseas enterprises reached 4,500 in 120 countries and regions. “Article views transnational Chinese enterprises,” Zhongguo tongxun she, 18 May 1994, in FBIS, 2 June 1994, p. 46.

45. Chen, “China is drafting a securities law.” Policies banning insider trading are so new, hazy and difficult to enforce that many are still referred to as “interim procedures.” See “Interim procedures against securities fraud,” Xinhua, 3 September 1993, in FBIS, 22 September 1993, pp. 44–47.

46. Tung, Ricky, “Transforming the management of Mainland China's state-owned enterprises,” Issues and Studies, Vol. 29, No. 12 (December 1993), pp. 1–17.Google Scholar

47. The nightly television news in Shanghai now features colour-coded reports of the rise and fall of the stock market, so that even young children can determine whether it was a bull or bear market that day. The most important newspaper covering the Shanghai stock market is Shanghai Securities (Shanghai zhengquan bao); and companies theoretically disclose all information relevant to shareholders in this and other journals. Some reports claim that this journal rapidly sells out upon publication, but I saw many copies on sale in front of branch offices in 1993. Copies were passed around and studied by investors.

48. Chen, “China is drafting a securities law.”

49. Many stock and bond purchases are thoroughly researched and based upon new sources of information. For instance, when several articles appeared in government-run newspapers supporting Chinese membership in GATT, many investors sold shares in industrial companies that might become less competitive with lower tariff protection. Yet educated investors are said to fare worse than investors “of low cultural quality” who are well-connected, and confirmed cases of insider trading add to common suspicion among investors that the markets are “unfair.” “‘Ideological debates’ block passage of securities law,” Eastern Express (HK), 8 March 1994, p. 8, in FBIS, 9 March 1994, p. 43.

50. In 1993, China emerged, for example, as the world's largest gold-consuming country, and while much of the gold trade is banned it rages unabated. See China Economic Review, March 1993, p. 5; “China to strengthen supervision over gold markets,” and “Official orders closing of illegal gold markets,” Xinhua, 10 June 1994, in FBIS, 13 June 1994, pp. 47–48. Despite near-market rates for yuan (RMB) conversion, illegal monetary speculation, conversion, and overseas investments are also ubiquitous. “Bank officials explain monetary policies,” Dagong bao, 18 March 1994, p. 2, in FBIS, 25 March 1994, p. 53.

51. The government is already moving in this direction with more than 60 approved (by the Bank of China) and 140 as-yet unapproved new “investment funds” throughout the country. About 30 funds are listed, joint-stock companies. “New investment funds on Shanghai, Shenzhen exchanges,” Xinhua, 23 May 1994, in FBIS, 24 May 1994, p. 51.

52. “ ‘Ideological debates’ block passage of securities law.”

53. Fu-Chung, Li, “Third plenary session likely to discuss enterprise reform plan,” Lien Ho Poo, 18 October 1993, p. 7Google Scholar, in FBIS, 18 October 1993, p. 42.

54. See ‘Tian Jiyun calls for township enterprise shareholding,” Zhongguo xinwen she, 16 September 1993, in FBIS, 20 September 1993, p. 52; and Yunhe, Wu, “Rural firms to continue rapid development,” China Daily, 20 September 1993, p. 1.Google Scholar Hong Hu, the Vice-Minister of the State Commission for Restructuring the Economy (SCRE), would permit all China's state-owned enterprises to become joint-stock companies. See “Beijing to increase number of shareholding companies,” Xinhua, 19 October 1993, in FBIS, 21 October 1993, pp. 43–44.

55. Most of the respondents belonged to state-owned firms burdened by debts and public obligations. “Businessmen polled on management, taxes,” China Daily, 5 October 1993, p. 4.

56. Shenshen, Chen, “Clarifying property rights relationships is a necessary premise,” Chinese Economic Studies, Vol. 23, No. 1 (Fall 1989), p. 88.Google Scholar

57. Two Chinese scholars of securities regulations point out that in Japanese companies, the board of directors is composed of a far smaller percentage of stockholders than in Western nations, and the larger the company, the smaller the ratio of stockholders who become board members. The Japanese corporation “serves as another model of success…distinct from the Western model of stockownership,” and China may emulate it. Xiaoqiang, Wang and Xiaoming, Ji, “Thoughts on not establishing a stockholding system for enterprises,” in Chinese Economic Studies, Vol. 23, No. 1 (Fall 1989), pp. 33–42 at p. 37.Google Scholar