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26.02.2016 | 09:02
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Did you know

Stock market of China or the reasons why CPR can become a new financial center of the world

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China is a country, which impacts on finances of other countries. SW has researched its securities markets.

Country-treasure

Chinese economy is the second economy in the world by GDP annual volume and purchasing capacity after the United States. And it can keep this status in spite of a variety of global turmoil. Since the beginning of this century, the China is the first one in industrial production and leads in the world in production of natural resources - coal, wood, etc. China is also a big extractor of gas, oil and earth metals. China has a half of the world's currency reserves.

In 2014, China has significantly increased investments across the globe, reducing the rate of accumulation of US dollars in their reserves at that time.

Financial Times: "We are still afraid of China”

The development of Chinese economy during last decades is interesting both for experts and world’s community. Someone enjoys success and admires the development of the country, but another one feels fear about these factors.

"We are still afraid of China”, said the London-based newspaper «Financial Times» in 2004. “Of course, it does not carry the same risk as before this, but now this country is dangerous as a rival with its cheap labor, depriving us of jobs. But it is not only in our eyes China remains a threat... ".

How did it start?

To know more about current situation on China's stock market, you need to know more about the Shanghai and Shenzhen stock exchanges. After all, the history of the securities market in China is connected with these markets. In 2014, they finished sixth and tenth in the world in terms of market capitalization.

"Red light" for stock exchanges

The Shanghai Stock Exchange passed a hard way of development than any other element of the Chinese stock market. The first securities transactions on it were conducted in 1866. At the beginning of its history it saw both the periods of prosperity and the periods of decline and 1871 and 1883 years were the investors’ hopes collapse. Then they suffered huge losses and were knocked out of the investment way for a long time. In the 50-80s of the last century, Shanghai Stock Exchange experienced a period of "freezing". In those years, China's politicians believed that there was no need for special securities institutions. Just after the start of the issuance of government securities and the significant fluctuations in the economic policy of China Communist Party recognized the need and permitted functioning of the stock exchanges. 1990 was the beginning of the second life of the Shanghai Stock Exchange. Issuance of government bonds began in the 80s, and the volume of their emissions increased rapidly, and the right to issue securities was allowed not only for government, but also for state-owned enterprises and banks. From 1982 to 1990 the emissions of government bonds doubled: from 3 to 6.4 billion RMB.

In 1990 Shenzhen Stock Exchange started working. It was designed to attract investors and to upgrade Chinese enterprises. Borrowed from the Americans the principles formed more contemporary model of

Shanghai and Shenzhen Stock Exchanges are the leaders by market capitalization.

China's stock market with elaborated system of rules and regulations and powerful regulatory body.

The special district of China Hong Kong also has its own trade organizer - Hong Kong Stock Exchange, active market player on a global scale.

Interesting fact. The value of shares of Chinese companies on the Shanghai and Shenzhen stock exchanges significantly exceeds the same value at the stock exchange of Hong Kong. One of the main reasons of inconsistency in pricing policy is limiting of foreign investment, which the Chinese regulator uses to prevent a sharp dropping of stock prices. At the same time, the leading securities market experts are of the opinion that the price of shares on the Chinese enterprises in Hong Kong stock exchange is much more matching their actual market value.

The determining element of the global economy

The stock market is determining element of the economy. Its fall means a slowdown and, consequently, a reduction in energy consumption. By the way, China today is one of the leading importers of oil, US experts said. In such a case the stock market of China depends on such factors as, for example, inflation and reduction of demand for Chinese products in countries-consumers.

This is a key risk for China market. "The main risk of the Chinese economy is decrease of demand in foreign markets", said Alistair Thornton, an analyst at IHS Global Insight. In 2002, direct investments in

The main risk of the Chinese economy is decrease of demand in foreign markets.

China were $2.7 billion, but in 2012 it amounted to $87.8 billion and in 2013 - $107.8 billion.

The share of the Chinese People's Republic in 2002-2013 years in the global total volume of direct investment increased from 0.6 to 7.6 %%.

At the same time, an American experts believe the crisis, which we can see in China's stock market recently, is not local in its nature and may have a negative impact not only on the local economy but also on the whole world. However, despite some fluctuation of economic stability, China is getting closer to the status of the world’s financial center, and RMB, according to experts, may soon become one of the world's major currencies. Wait and see?...

References in the article: shanghai stock exchange, stock market, china, gdp
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