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Copyright (c) 2004 William S. Richardson School of Law 
University of Hawaii Asian-Pacific Law & Policy Journal

ARTICLE: Dancing with Wolves: Regulation and Deregulation of Foreign Investment in China's Stock Market


5 Asian-Pacific L. & Pol'y J. 1





Nobel laureate and economist John Hicks suggested that financial markets are one of the causes for the surge in economic growth over the past two centuries, claiming the Industrial Revolution would have been impossible without the concurrent development of financial markets. 1 The World Bank, in its World Development Report, confirmed the finding of Hicks and concluded that financial development has been central to economic growth and poverty reduction. 2

The effective functioning of financial markets and financial systems depends upon sound financial institutions, which include banks, insurance companies, provident and pension funds, investment and pooled investment schemes (mutual funds), compulsory saving schemes, and securities markets. 3 Financial institutions help facilitate private and official capital flows, channel investment and resources to their most efficient and productive uses, encourage technological innovations, and in so doing, perform the functions of shifting risk to those who are willing to bear it, as well as reducing the information costs of making transactions in market economies. 4

In addition to foreign direct investment (FDI), bank borrowing and lending, and bond issuance, the development of stock markets is regarded as one of the most important alternative funding sources, which is especially useful to developing countries including the People's Republic of China (China or PRC), the largest country in this group. 5 The World Bank noted, "As the stock market develops and strengthens, it benefits other parts of the financial sector as ...
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