The Myth of the China Stock Market

Across China, many look at Shang Fulin as a savior. The new head of China's Securities Regulatory Commission (CSRC) takes the helm in the midst of an 18-month bear market, one caused by government policies--or so conventional wisdom has it. His challenge will be to resist the temptation to seek short-term popularity, recognizing instead that China's stock market must endure short-term pain to win long-term gains.

Eight myths cloud debate over stock market policy in China. Mr. Shang's job will be easier if each is dispelled:

#1. China's stock market has grown extremely large, extremely quickly. At the end of 2002 the official capitalization of China's stock market was $458 billion, making it the eighth largest in the world--an apparently astounding achievement given where China was a decade ago.