Having grown to one of the largest in the world in just over two decades, the stock market of China is cited as a counterexample to the significance of law for financial market development. A thorough examination of the development of China’s stock market however finds that law is actually critical to sustaining market growth and law did play a role in the growth of the market. On the other hand, the trajectory of development in China is growth first followed by law, and the improvement of law is caused by market growth. The experience of China hence suggests that law and market growth are in a bi- rather than unidirectional causal relation, and the course of development is “growth-law-further growth”. Nevertheless, this virtuous circulation is not a guarantee and market growth may not lead to stronger law in all instances, evidenced by the fact that, though now better protected from market abuse, Chinese investors remain vulnerable to serious managerial misconduct at listed SOEs. Political and ideological constraints are the root obstacle. Politics and ideologies in addition to economic growth seem to be fundamental to stock market development, for they not just explain the stagnation of law in China despite market growth, but also market growth or lack of it in the first place. On the other hand, the strength of law in a country might not have been predetermined by its legal origin, as law has improved in certain respects even in China, a country without the tradition of rule of law.
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