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© 2023 International Monetary Fund
WP/23/26
IMF Working Paper
Research Department
The International of China’s Equity Markets
Prepared by Juan J. Cortina, Maria Soledad Martinez Peria, Sergio L. Schmukler, and Jasmine Xiao*
Authorized for distribution by Giovanni Dell’Ariccia
February 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: China’s equity markets internationalization process 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 studies 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 finds large increases in financial and investment activities for domestic listed and for connected firms, with significant aggregate effects. The evidence also suggests the rise in firms’ equity issuances was primarily and initially financed by domestic investors. International investors’ portfolio holdings in Chinese equity markets and ownership in firms increased markedly only once Chinese firms’ locally issued shares became part of the MSCI Emerging Markets Index.
| JEL Classification Numbers: | F33; G00; G01; G15; G21; G23; G31 |
| Keywords: | equity financing; equity market liberalization; firm investment; foreign investors; international investors; issuance activity; Stock Connect |
| Author’s E-Mail Address: | jcortinalorente@worldbank.org; mmartinezperia@imf.org; sschmukler@worldbank.org; jasmine.xiao@nd.edu |
| JEL Classification Numbers: | F33; G00; G01; G15; G21; G23; G31 |
| Keywords: | equity financing; equity market liberalization; firm investment; foreign investors; international investors; issuance activity; Stock Connect |
| Author’s E-Mail Address: | jcortinalorente@worldbank.org; mmartinezperia@imf.org; sschmukler@worldbank.org; jasmine.xiao@nd.edu |
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WORKING PAPERS
The Internationalization of China’s Equity Markets
Prepared by Juan J. Cortina, Maria Soledad Martinez Peria, Sergio L. Schmukler, and Jasmine Xiao
We are grateful to Ariadne Checo de los Santos, Gianluca Yong Gonzalez, and, in particular, Yang Liu and Patricio Yunis for excellent research assistance. We received very helpful comments from Yingyuan Chen, Ergys Islamaj, Phakawa Jaesakul, Joong Kang, Michael Klein, Michael Law, Andrei Levchenko, Gian Maria Milesi-Ferretti, Tomas Williams and participants in the IMF’s 2023 Jacques Polak Annual Research Conference. For research support, we are grateful to the World Bank Knowledge for Change Program and the Research Support Budget. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the IMF or the World Bank and its affiliated organizations, or those of the IMF or the World Bank management, IMF or World Bank Executive Directors, or the governments they represent. Cortina and Schmukler are with the World Bank; Martinez Peria is with the International Monetary Fund; Xiao is with the University of Notre Dame.