Due to opaque financial markets there are inherent risks in investing in Chinese Stock Markets.
Transparency in Chinese financial markets is still poor. Lagging transparency has been cited as one of the main reasons for the current global financial and economic crisis. G20 countries – China included – have committed themselves in a communiqué from the London Summit of 2009 to work harder for increased transparency in financial markets.
Thus, Chinese has an important global commitment: the improvement of transparency in its financial markets. This issue will become increasingly important if the Chinese economic powerhouse continues to gradually open its capital account, pursue its long‐term work for a
convertible currency and develop a global financial center in Shanghai.
Markedly increased financial transparency should not only give major microeconomic benefits to domestic and foreign shareholders, but also macroeconomic gains to China itself, to Europe and the whole global economy – even if modeling based on these correlations still appears to be impossible. Joining the process of more transparency will make the need for specific financial reforms more visible ‐ and more intensively discussed! This could accelerate the necessary structural changes in Chinese monetary policy and on financial markets.
Growing risks may be observed earlier than in the current opaque system. Avoiding bursting bubbles and bank crises may mean a very positive contribution to GDP growth – though in an inverted way.
China is already the number one exporter in the world. Soon it will become the second largest economy in the world in traditional GDP terms. These developments clearly call for a major upgrading and modernization of China’s financial markets – not least because of the
fact that many developments in China will have an increasing impact on global financial markets, European markets included. How should such a development be achieved without acceptable or good financial transparency?
There should not be an alternative to good transparency in Chinese financial markets – for both domestic and global reasons. Such a change would be positive for Europe as well.