Three Forces That Open Up China To New Investors

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An excerpt:

"The three major driving forces are the state-ownership reform, the legal system upgrade, and finally, active financial innovation. The three factors are also inter-connected and I will quickly go through them in a little more details.

First of all, the determination by the state government to publicly trade all the shares held by the state. This relates to one distinctive feature of the companies in China, that is, the dominating ownership by the state in the form of non-tradable shares in listed companies. In average, the state owns two thirds of the shares of the listed companies, in other words, twice the size of those tradable shares held by the public investors. This unique ownership structure has led to many issues such as corporate governance and distorted valuations, for which I won't get into details here. The punch line here is that in mid 2005 the government launched the largest ever reform in the market history to address this ownership issue. Because the reform aims to make all shares tradable in the public market, this process is known as the "full-flotation" reform."