2008 Working Papers
Working Paper 03.08
Developing regulatory frameworks and practices in China's new financial markets
Karen P.Y. Lai
Abstract
The case of China’s journey towards marketisation in its financial sector, in instituting market-led reforms and practices, demonstrates the complex and fluid relationship between state and finance capital. This paper focuses on the regulation of newly established financial markets in Shanghai and reveals that strong state control and intervention is instrumental rather than contradictory to the development of new regulatory frameworks and practices. Based on interviews with government and regulatory authorities, and domestic and foreign financial institutions in Shanghai, I examine how regulatory knowledge and expertise were acquired, and why specific methods and learning partners were chosen over others according to the guiding principle of ‘difang hua’ (localisation). I also highlight some problems associated with the Chinese style of regulatory structures and practices as identified by interviewees. The case of China’s WTO ascension is used to illustrate the tension between state control and international pressures. China’s financial reform is not simply a transition ‘from plan to market’ but a process of reconfiguration specific to its historical and geographical context, of which the constitutive role of the state is crucial. The experience of market building in Shanghai thus illuminates how different constructions of capitalism evolve, how they intersect, and how a geographic sensibility makes a difference to the form and function of variegated capitalist economies.
Key words: State, finance, markets, regulation, capitalism, China.