This paper empirically examines the emergence of financial market fragmentation in China after 1978-reform. It argues that the emergence of financial market fragmentation in China after 1978 is inherent in two salient features of Chinese economic reform, namely, decentralization and gradualism. The low capital mobility between different market segments is largely attributable to the distortions in the financial system generated by the initiatives of local governments. Using provincial loans and deposits data, this paper found that the mobility of financial capital has been actually low across Chinese provinces in the reform period. In addition, financial market fragmentation as assessed by provincial loan-deposit correlation is a new phenomenon emerged since the mid-1980s. Also, the loan-deposit correlation has been significantly influenced by the local fiscal policies and the size of state-owned sector.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
8176.
Find related papers by JEL classification: C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
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