The Effect of Government Policy on China's Stock Market

Wang, Liya
October 2009
University of St. Gallen, Business Dissertations;2009, p1
Case Study
China is moving from a planned economy toward a market-oriented financial system as it opens its economy to foreign competition in the last decade. Now facing the global financial crisis, the government is turning the export-oriented strategy which powered remarkable growth during the first 20-year of China's growth story to a greater reliance on inner dynamism. This paper examines the effect of various government policies China has implemented during the 20-year development of its stock market. I used various empirical data collected from the government statistics bureaus, the central bank and research institutions to exam whether monetary policy, fiscal policy and some specific capital market related policies have direct or indirect effects on the stock market and whether their impact is positive for China's development. Based on descriptive, regression analysis, Granger Causality, VAR model and case studies, the results suggest government's policies have had significant impact on the stock market. I conclude that the central government has made the necessary efforts and posted positive influences on the development of China's stock market, learning by doing, perfecting the framework during the transition to a market economy, although there have been several failed attempts along the way.


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