China`s B-Share Market Reform: Capital Market Liberalization under Imperfect Currency Convertibility

Abstract

In February 2001, a major reform took place in China’s stock market. Domestic residents have since been allowed to trade B-shares, which formerly were available only to foreign investors. The change is an attempt to liberalize the capital market under imperfect currency convertibility. The primary objective is to achieve more efficient utilization of the growing private foreign exchange savings in the country, rather than to seek unification of the domestic and foreign share markets. This change is consistent with the ”easy-to-hard reform sequence,” which is a basic characteristic of China’s gradualist reform strategy.