Concept of a Financial Sector: Development Into a Financial Center

Chinese Finance Sector
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Concept of a Financial Sector: Development into a Financial Center
China’s financial sector is comparatively small compared to western economies such as the United States. The history of the Chinese financial sector dates back to the 1980s when the country began its gradual economic growth with the slow introduction of a market economy. Before the 1980s, China had a single government-controlled banking institution: - the People’s Bank of China (PBOC) (Chen & Vinson, 2016). Since that time, significant economic reforms have made banking to be driven by market fundamentals. Recently, the financial sector has witnessed significant developments with establishment of two financial centers: Shenzhen and Shanghai. These financial centers were created in 1990 and have become large trading centers that compete with developed economies (Statistica, n.d.). Although their market capitalization fell below the Hong Kong stock exchange, they had a significantly higher turnover.
In addition to the Shenzhen and Shanghai stock exchanges, the National Equities Exchange and Quotations (NEEQ) is an equity exchange in Beijing with an insignificant trading volume. In 2021, the Beijing stock exchange was founded as a NEEQ subsidiary (Statistica, n.d.). The pressure to establish the Chinese financial sector came from Chinese policymakers who aimed to develop an independent financial market (Chen & Vinson, 2016). However, the strict regulation of the Chinese market and its comparative isolation from global investors have made foreign stock exchange listing an attractive option for many Chinese firms (Chen & Vinson, 2016). For instance, tech startups prefer international stock exchanges as a countermeasure.
This preference motivated the Chinese government to establish boards like Chinext and Star-A market with less restricted entry standards (Statistica, n.d.). The establishment of star Market was the latest step towards building China as a world financial center. After the board’s launch in 2019, it became the ideal exchange for a series of enormous Initial Public offerings (IPOs) (Statistica, n.d.). The developments experienced by the Chinese financial industry, including the establishment of stock exchange markets, have contributed to the country’s position as the second-largest economy in the world.
Financial Services in China
Financial services in China have increased spontaneously in recent years, extending the nation's Gross Domestic Product (GDP). Due to this rapid expansion, financial services account for over 30% of the growth of the Chinese service sector (Elliott & Yan, 2013). One of the financial services available in China is banking. Banks dominate the Chinese financial system, offering the private sector about 60% of total credit. The Chinese banking system is equitably concentrated, with five banks splitting nearly 50% of the total loan market (Elliott & Yan, 2013). Banks have made it easy for state enterprises, borrowers, businesses, and local governments to acquire loans.
Another financial service is insurance. China has several insu...