The Efficiency of the Chinese Stock Markets: Some Unfinished Business on the Road to Economic Transformation

In his William S. Vickrey address to the International Atlantic Economic association in 2005, Franklin Allen examined the question of how China has managed to grow rapidly in the absence of many of the factors usually considered essential to economic expansion in Western economies. China had no tradition of the rule of law, corruption was rampant, and the financial institutions that could facilitate growth were inadequate and/or dysfunctional. In particular, the stock and bond markets in China were undeveloped and the banking system did not serve as an institution that could effectively channel individual savings into those companies with the highest potential investment opportunities.