China’s Financial Markets in the global context.pdf

8 The Chinese eConomy The Chinese economy, vol. 43, no. 6, November–December 2010, pp. 8–21. © 2010 M.E. Sharpe, Inc. All rights reserved. ISSN 1097–1475/2010 $9.50 + 0.00. DOI 10.2753/1097-1475430602 Dominick Salvatore China’s Financial Markets in the Global Context Abstract: A well-functioning financial sector is crucial for a nation’s growth and development. During the past ten years China has made substantial progress in developing and improving its financial markets, but additional major improvements are still needed in areas identified in this article. These improvements will permit China’s rapid growth to continue unabated, reduce the structural imbalance in the world economy, and may help to avoid another global financial and economic crisis. A well-functioning financial market is crucial to a nation’s growth and development. Before the current financial crisis, the U.S. financial sec- tor was the nation’s third-largest sector with 8 percent of gross domestic product (GDP), following the manufacturing sector with 14 percent of the nation’s GDP, and the real estate sector with 12 percent. For New York City, finance has been the largest sector, comprising 15 percent of the city’s economy and providing jobs for 328,000 people. Comparable figures for London are 20 percent and 318,000. Of course, finance is also the sector where the current financial crisis began, plunging the United States and most of the world economy into recession. Because of the importance of a well-functioning financial sector, better regulations are necessary to prevent bubbles from developing and caus- ing crises. Recall that it was the International Monetary Fund’s (IMF) pressure in the 1990s for premature activation of a financial sector not yet sufficiently well developed or strong enough to withstand global Dominick Salvatore is distinguished professor and director of the Ph.D. program in economics at Fordham University; e-mail: salvatore@fordham.e