Necessary Fictions: The Chinese Regulator, Irrational Investors, and the Stock Market in China

September 30, 2022 | China’s approach to stock market governance presents a puzzle to scholars, pundits, and policymakers. An increased emphasis on shareholder value, new innovation-focused stock markets, liberalized financial product offerings, and growing foreign ownership of listed companies have fundamentally transformed the financial landscape of the country. But to the dismay of global regulators, market practitioners, and the financial press, the China Securities Regulatory Commission (CSRC) has continued to deploy a host of draconian measures to manage its equities markets. Trading bands are imposed on stock prices, listings are arbitrarily denied, and hedging products remain on tenuous legal ground. Why do Chinese regulators continue to employ hard paternalistic tools that appear to undermine their efforts to build a better and more global stock market?

In contrast to studies focusing on fleet-footed capital, political patronage, and state capitalism, in this talk John Yasuda of Johns Hopkins University will unveil the hidden ideational underpinnings of financial regulation in China to explain the persistence of hard paternalist tools. Whereas in the Anglosphere, financial regulation assumes the presence of rational investors, an arms-length regulatory state, and semi-strong commitment to the efficient capital market hypothesis, Yasuda will argue that in China the regulator is driven by the specter of irrational investors, a paternalistic state, and distrust in the market mechanism. These economic ideas shape the way regulators approach the market, sometimes with devastating consequences.

This academic seminar is jointly sponsored by the Department of Government and the Initiative for U.S.-China Dialogue on Global Issues at Georgetown University.