The Internationalization of China’s Equity Markets

The internationalization of China’s equity markets started in the early 2000s but acceleratedafter 2012, when Chinese firms’ shares listed in Shanghai and Shenzhen gradually became available to internationalinvestors. This paper documents the effects of the post-2012 internationalization events by comparing the evolution ofequity financing and investment activities for (i) domestic listed firms relative to firms that already had access tointernational investors and (ii) domestic listed firms that were directly connected to international markets relative tothose that were not. The paper shows significant increases in financial and investment activities for domestic listedfirms and connected firms, with sizable aggregate effects. The evidence also suggests that the rise in firms’ equityissuances was primarily and initially financed by domestic investors. Foreign ownership of Chinese firms increased oncethe locally issued shares became part of the Morgan Stanley Capital International (MSCI) Emerging Markets Index in 2018.