The Internationalization of China's Equity Markets

The internationalization of China's equity markets started in the early 2000s but accelerated after 2012, when Chinese firms' shares listed in Shanghai and Shenzhen gradually became available to international investors. This paper documents the effects of the post-2012 internationalization events by comparing the evolution of equity financing and investment activities for (i) domestic listed firms relative to firms that already had access to international investors and (ii) domestic listed firms that were directly connected to international markets relative to those that were not. The paper shows significant increases in financial and investment activities for domestic listed firms and connected firms, with sizable aggregate effects. The evidence also suggests that the rise in firms' equity issuances was primarily and initially financed by domestic investors. Foreign ownership of Chinese firms increased once the locally issued shares became part of the Morgan Stanley Capital International (MSCI) Emerging Markets Index in 2018. Keywords Equity financing * Equity issuance activity * Equity market liberalization * Firm investment * Foreign investors * International investors * Stock Connect JEL Classification F33 G00 * G01 * G15 G21 G23 G31
1 Introduction China's integration into global financial markets is important for both China and the world economy (Cerutti and Obstfeld 2019). Before China joined the World Trade Organization (WTO) in [...]