1. China has the second largest economy in the world, making them one of the strongest countries
financially. Therefore, I chose to do the People’s Republic of China as my focus on my term paper.
China’s largest stock market is the Shanghai Composite Stock Exchange (SHCOMP) which is
comparable to the United States S&P 500. In due time, I think that the differences between China and the
US’s financial markets will get smaller as China’s economy continues to grow faster and expands as their
financial system becomes more similar to the United States financial system. China’s financial system has
continued to grow enough to continue to support their rapid economic growth.
The three most important aspects of China’s economy are: banks, insurance companies, and
bonds. Banks are by far the most important, they provide financing and money which leads to greater
investment for China’s ever growing economy. Elliot stated in The Chinese Financial System that,
“Banks dominate the Chinese financial system, providing about three fifths of total credit to the private
sector.” The five largest banks are mostly owned by the central government. The government involves
themselves much more in China’s financial decisions in comparison to the United States. The second
largest part of China’s economy is bonds, “The bond market, however, is under-developed, providing
credit equivalent to approximately 41% of China’s GDP” (Statistics). The third largest aspect of China’s
financial structure is insurance, “Insurance companies are another under-developed part of the Chinese
financial system, holding $1.2 trillion in assets,or just over 14% of GDP” (China's Statistical Yearbook).
Banks are regulated primarily by the China Banking Regulatory Commission (CBRC), securities and
financial markets by the China Securities Regulatory Commission (CSRC), and insurance by the China
Insurance Regulatory Commission (CIRC).
As you can see from the data I have collected from the Shanghai Composite Exchange and the
S&P 500 over the past 10 years,China’s stock market is far more volatile in comparison to the United
States stock market. This is especially prevalent around the recession of 2007/2008, when the Shanghai
took a drastic drop showcasing that the recession in the United States also led to changes in China’s stock
market as well. There was drop in the United States stock market but it was far less than the drop in

2. China. This shows how China’s
stock market it more sensitive to
global financial crises. China’s
stock market for example was at an
all-time high right before the
recession hit America, while the
S&P stayed pretty constant.
Overall, over the past 10 years it
can be seen that China’s stock
market is far more volatile that the
United States stock market.
When looking at both of the graphs above of stock data from the last 10 years,it can be seen that
China’s stock market moved in the same way as the United States stock market. They fluctuated in the
same way as far as going up and down. During the recession, the S&P 500 dipped from 1000 to 500
during 2008 to 2009. As far as China, they had a sharp decrease from 6000 to 2000 during 2008 to 2009
which was also caused by the recession of the United States. China though suffered a huge decrease in
their stock market.
The Chinese financial system is very important in helping or hurting the development of China’s
economy. China’s economy and financial structure also greatly affects the rest of the world’s economies
as well. Fluctuations and economic disturbances have a great impact on China’s stock market.
0
2000
4000
6000
8000
People's Republic of China Shanghai
Composite
0
500
1000
1500
2000
2500
United States Stock Market S&P 500

3. Works Cited
Elliott, Douglas J., and Kai Yan. "The Chinese Financial System." Choice Reviews Online 32.06
(1995): 32-3404. The Brooking Institution, July 2013. Web. 11 Apr. 2015.
"Statistics." China's Statistical Yearbook. National Bureau of Statistics of the People's Republic of
China, 2012. Web. 17 Apr. 2015.
"Statistics |." Statistics | World Federation of Exchanges. World Federation of Exchanges, 2010.
Web. 17 Apr. 2015.