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Can China Grow Faster? A Diagnosis on the Fragmentation of the Domestic Capital Market

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Author Info
Genevieve Boyreau-Debray
Shang-Jin Wei

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Abstract

This paper examines possible segmentation of the internal capital market in China. We employ two standard tools from the international finance literature to analyze financial integration across Chinese provinces. Both tests confirm a similar (and somewhat surprising) picture: capital mobility within China is low! Furthermore, the degree of internal financial integration appears to have decreased, rather than increased, in the 1990s relative to the preceding period. Finally, we document that the government tends to reallocate capital from more productive regions to less productive ones. In this sense, a smaller role of the government in the financial sector might increase the rate of economic growth.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/76.

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Length: 45 pages
Date of creation: 17 May 2004
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Handle: RePEc:imf:imfwpa:04/76

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Keywords: Capital markets ; China ; Capital flows ; Financial sector ; Economic growth ;

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References listed on IDEAS
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  1. Cheng, Xiaoqiang & Degryse, Hans, 2006. "The impact of bank and non-bank financial institutions on local economic growth in China," Discussion Paper 82, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Ray Brooks & Steven Barnett, 2006. "What's Driving Investment in China?," IMF Working Papers 06/265, International Monetary Fund. [Downloadable!]
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