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China's Financial Market Fragmentation, 1978-2004


  • Li, Jia


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.

Suggested Citation

  • Li, Jia, 2006. "China's Financial Market Fragmentation, 1978-2004," MPRA Paper 8176, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:8176

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    References listed on IDEAS

    1. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
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    More about this item


    China; financial development; Feldstein-Horioka test;

    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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