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To fully understand the role of law in China’s capital market, one must first consider how modern firms and the capital market came to form and how their early emergence fit within the Party-state’s overall economic development plans.
The chapter presents the emergence of the capital market in China. It focuses on two key elements: (1) the rise of the large (public) firm and (2) the creation of the capital market as a platform for the offering and exchange of securities. Through these elements, the chapter looks at how the legal framework that governed firms in the early stages of market development was shaped by, and helped secure, the political–economy dynamics at that time.
Many scholar-officials' main emphasis was on modern industry. They generally assumed that commercial enterprises could at best play a supporting role. Influential officials who became major sponsors of modern enterprise were especially partial to industry. From the early 1870s, Li Hung-chang argued that guns and gunboats alone did not make a nation strong; their operation required the support of industry in manufacturing, mining and modern communications; industry would create new wealth - a further source of national strength. Chang Chih-tung, too, realized the link between military power and economic development. Chinese promotion of modern enterprise in the late nineteenth century was inspired by the political necessity of quickly achieving respectable national strength. This fundamental goal united government officials of various persuasions in a common commitment to industrialization. A few modern enterprises were able to avoid either official sponsorship or comprador management. Hua-hsin was in fact a private enterprise in which official and merchant shareholders collaborated as individuals.
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