Though no one is quite sure what market socialism is, we can be sure that… well, to be honest, I'm not quite sure of much, nor am I sure how to define a victory for market socialism.  This because the topic of today's discussion, the continued reform of China's stock market, is a victory for China's market economy.  But on the other hand, when a vast number of state-owned companies become more and more open to private ownership and control, isn't it a decrease in the authority of China's socialism?

            I'm no political scientist, but it seems like a conundrum to me.  But back to the topic at hand: the reform of China's stock market.  The problem the Chinese government is trying to fix is the “split-share” structure that used to make 2/3 of the nation's stock non-tradable.  The ownership of these shares was in the hands of the government and select legal persons.  This caused stagnation in the stock market that did not match the massive growth of the rest of China's economy.  Obvious reform: put that huge chunk of stock on the market to get things moving.

            How's the reform going so far?  Pretty well, though not without problems and setbacks.  The speed bumps, in general, are coming from the greed of those in control of the previously non-tradable shares.  A decrease in the confidence of the reforms (and a decrease in stock values) came when the majority shareholders started backing away from the “give about 3 shares to minority shareholders for every 10 shares I (a majority stock holder) have” rule.  Now, because of that hiccup, the government is making sure majority shareholders are chocking up the proper number of stocks.  Second major problem? Illegal trading is going on black market style.

            The good signs are plentiful, though. As of January 23, 462 of the roughly 1,400 listed companies had undergone stock reforms.  330 of the 462 were either centrally controlled state owned enterprises (SOE) or local SOE's.  This is in less than a year, which seems quick to me.  But just as I’m not a political scientist, I'm not an economist, so don't take my word for it.  Also, interest in the stock market is exploding.  In mid-January, 7,000 new traders were entering the stock market a day.  And stock market prices, especially those of reformed companies, continues to rise.

            As usual, things are changing in China.

            Oh, and by the way, if you didn't already know this, foreign qualified institutional investors now have a higher $6 billion investment cap and can purchase the previously forbidden renminbi A shares as well as the foreign currency B shares.  And there are some rumors about combining the two separate A and B markets.

Check this site out: http://english.gov.cn/2006-02/20/content_204362.htm