China can learn from India’s experience with building a durable stock market

By Hu Weijia Source:Global Times Published: 2018/8/23 22:13:42

China's stock market has tumbled, ceding its ranking as the world's second-largest. The key Shanghai Composite Index has dropped more than 20 percent since the start of the year.

As Chinese investors weigh up their losses, the dramatic performance of the stock market in India has become a hot topic on Chinese social media platforms. India may be Asia's best-performing major market, with the key BSE Sensex index up about 350 percent since 2008.

China needs to learn from India's experience to shore up confidence in the stock market but can't blindly follow its style.

Some Western observers attribute the success of India's stock markets to the country's dazzling economic growth, but that may be too simplistic.

China experienced astonishing growth in recent decades that made the country the world's second-largest economy, but Chinese shares haven't been shining as brightly as the Chinese economy. Unswerving reform is needed as part of a market restructuring, and India's experience can be used as a reference.

India has liberalized foreign investment in the stock market, but amid escalating Sino-US trade friction that is creating global economic uncertainty, stocks in India seem to be protected from extreme volatility. This is a hard-won achievement.

First, institutional investors make up the majority of those trading on the Indian bourses, but Chinese equities are particularly vulnerable to sudden swings in sentiment as they are dominated by individual investors. Along with reform drives to further liberalize the Chinese market, the government needs to encourage institutional investors to take a greater share.

Second, the Indian market has established sound mechanisms that are similar to those of its international counterparts, but China has made slow progress in areas such as introducing a delisting mechanism. With a sound regulatory framework, Indian shares are a barometer of the country's economy. However, China's stock market seems detached from its macroeconomic performance.

Significant differences between China's and India's stock markets are worth careful study.

China should learn from India and find the most suitable way to reform the stock market, step by step with patience and openness.

The author is a reporter with the Global Times.


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