China's Capital Markets: Advancing Towards Maturity with Inclusivity and Global Integration

Since the launch of reform and opening-up, China's capital markets have achieved remarkable progress, evolving from scratch and early experimentation into a sophisticated system that serves both the domestic economy and global markets. Their development can be divided into four distinct phases, each marked by institutional breakthroughs and expanding from serving the domestic economy to connecting with global markets.

Phase 1: Exploration and Inception (1980s)

The framework of China's capital markets began to take shape in this period. A pivotal moment was the establishment of the Shanghai and Shenzhen stock exchanges in 1990, which inaugurated centralized securities trading in modern China. Simultaneously, the bond market saw a revival with the resumption of treasury bond issuance in 1981, signaling the return of market-based capital allocation. The futures market also took its first step with the founding of the Zhengzhou Commodity Exchange in 1990, planting the seeds for the development of the futures market.

Phase 2: Standardization and Growth (1990s)

This era was defined by the creation of a unified regulatory and legal framework. The founding of the China Securities Regulatory Commission (CSRC) in 1992 established a centralized oversight system, while the implementation of the Securities Law in 1999 placed market operations on a firm legal footing. During this phase, a unified interbank bond market was formed in 1997, creating a dual structure alongside the exchange market. In a significant move for forex reform, China adopted a managed floating exchange rate regime based on market supply and demand in 1994, marking the first step toward a more market-oriented exchange rate mechanism.

Phase 3: Reform and Deepening (2000-2010)

Deep-seated institutional barriers were removed, and market diversity increased substantially. The share-trading reform launched in 2005 resolved a major historical issue hindering market development, achieving full share tradability. The launch of the ChiNext board in 2009 provided a platform for innovative growth enterprises, forming an initial multi-tier capital market system. A pivotal moment for opening the bond market occurred in 2005 with the issuance of the first Panda bonds, which are yuan-denominated bonds sold in China by overseas issuers. This period also saw the yuan internationalization pilot program for cross-border trade settlements begin in 2009.

Phase 4: High-Quality Development and Opening (2010-Present)

Innovation-driven growth and high-standard opening have taken center stage. The 2019 launch of the Sci-Tech Innovation Board (STAR Market), which introduced a registration-based IPO system, opened a new channel for financing high-tech firms. The continuous deepening of the Stock Connect programs linking Shanghai, Shenzhen, and Hong Kong significantly expanded two-way market access. By August 2025, the total market capitalization of A-shares had surpassed 100 trillion yuan, securing China's position as the world's second-largest stock market for five consecutive years. The bond market, the world's second-largest, has seen cumulative Panda bond issuance exceed 1 trillion yuan, alongside innovations like green bonds (funding eco-friendly projects) and sci-tech innovation bonds (supporting research and development). The futures market's global influence is rising, exemplified by the May 2025 listing of a Shanghai natural rubber futures contract on the Osaka Exchange using an "RMB pricing + JPY settlement" model. In forex markets, the Cross-border Interbank Payment System (CIPS) now serves over 180 countries and regions, processing transactions exceeding 100 trillion yuan in 2024, underpinning the RMB's international role.

China's capital markets also demonstrate distinct inclusivity, effectively serving small enterprises and safeguarding livelihoods. The National Equities Exchange and Quotations (NEEQ) supports over 6,000 SMEs, while the Beijing Stock Exchange focuses on "specialized, refined, distinctive, and innovative" firms. Regional equity markets, forming the foundation, served approximately 180,000 enterprises-mostly micro and small businesses-by the end of 2024. The "insurance + futures" model has effectively protected farmers from agricultural price volatility by allowing them to purchase price insurance, with insurers hedging risks in futures markets; it now covers over 20 products like live hogs and corn, protecting more than 200,000 households in 2024. Additionally, asset-backed securitization (ABS) issued approximately 2 trillion yuan in 2024, with an outstanding balance of about 4 trillion yuan, channeling funds to SMEs.

Through high-level two-way opening, these markets deeply integrate with global finance, bolstering worldwide stability. As of August 2025, foreign holdings of A-shares reached 3.4 trillion yuan. A total of 907 overseas institutions obtained Qualified Foreign Investor (QFII/RQFII) status, and 269 Chinese companies listed abroad. The Stock Connect programs have cumulatively attracted over 1 trillion yuan of foreign capital. China also provides concrete support through tools like government concessional loans and Panda bonds to fund infrastructure projects in Belt and Road Initiative participant countries, while actively engaging in global financial governance, such as promoting mutual recognition of green finance standards.

In summary, the achievements of China's capital markets reflect the successful implementation of reform and opening-up policies, showcasing a steadfast commitment to serving the real economy, benefiting investors, and fostering global stability. Through continuous innovation and unwavering openness, they are steadily advancing toward higher maturity and stronger international influence.

(Author: Zheng Pengxiang)
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