NCPA - National Center for Policy Analysis

China Meets The Stock Market

June 27, 1997

Although Hong Kong's long-running boom is expected to continue after it is reunited with China on July 1, an interesting question has been raised. Although China's President, Jiang Zemin, knows how to arrest dissidents and rescue state-owned companies, what would he know about stopping a stock market crash?

This is but one of many questions being raised as Hong Kong industrialists race to take advantage of China's huge supply of cheap labor for manufacturing.

  • So far, Hong Kong businesses have set up operations that employ more than five million Chinese workers -- more than work in Hong Kong.
  • Since China opened up in 1979, foreign investment as of 1996 had soared to nearly $100 billion -- with two out of every three dollars coming from Hong Kong.
  • Although Chinese stock markets have taken off, they would have to issue another $700 billion in stocks to catch up to Taiwan's stock market, as a share of gross domestic product.
  • In 1996, 1.6 million passengers flew to China from Hong Kong, an increase of 7 percent over the previous year.

Already, tens of millions of Chinese citizens watch Hong Kong television. Analysts say that someday millions of Chinese citizens will get their cash from Hong Kong bank machines, live in apartments built there, and wear clothes designed there.

They will also have their money managed by Hong Kong fund managers -- who are eagerly awaiting their chance to build a mutual fund industry in China.

Source: Sheryl WuDunn, "The Tail that Wags the Dragon," New York Times, June 27, 1997.


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