Back in 1992，China first brought forward the reform goal of establishing a socialist market system. It has been 10 years since then. If we want to establish a market economic system，we need to let the market play a fundamental function in allocating resources under the macro-economic control of the country. And that requires the establishment of capital，technology，labor，real estate markets and other markets of means of production. For the past decade，a lot of progress has been made in the development of market systems and various factor markets have been basically established. However，compared to other factor markets，the capital market lags way behind.

In 2002，among all the sources of loans for enterprises，90% comes from direct financing of the bank loans and less than 10% comes from direct financing at stock and bond markets. By the end of 2002，bank loans reached RMB 13.1 trillion while the total capitalization of the stock market stood at RMB 3.8 trillion among which the value of circulated stocks was RMB 1.3 trillion. The total capitalization of the stock market accounted for less than 3.8% of GDP. There are three shortcoming of the capital market.

① Simple Capital Market Structure Currently China has no Growth Enterprises Board besides the Main Board Markets in Shanghai and Shenzhen. The financing issue for small and medium-sized enterprises is very urgent. There are very few products on the capital market and investors have very few products to choose from.

② The Investors in the Stock Market Are Mostly Individual Investors；There Are Very Few Institutional Investors At present，there are already more than 68 million investors in the capital market but the majority is individual investors who invest less than RMB 500，000. Therefore，the market is prone to irrational investment behavior which might lead to market fluctuations and weak risk defense capacity.

③ The Bond Market Has Just Been Started Compared to the stock market，the lagging development of the bond market is more obvious. The balance of current corporate bonds is merely RMB 70 billion；there are only 77 products for trade，mainly convertible debt，corporate debt，T-Bond Spot，government securities repurchase and so on. The stock and bond markets are not coordinated in development which restricts the channels and structures for corporate direct financing.

④ A unified capital market has not been put in place. The stock market，corporate bond market and national debt market are separated and a unified and interconnected security market has yet to be established. Even the Shanghai Stock Exchange and Shenzhen Stock Exchange are not interconnected which severely restricts the information flow and scale expansion and also increases transaction cost.

The development of China’s capital market is lagging behind mainly because the period of development is short and there is a lack of experiences and a lack of fully-fledged legal system in place. In order to maintain the stability of the capital market，avoid financial fluctuations and ensure the stable performance of the economy，lessons and development strategies should be continuously accumulated.

The Decision of the CPC Central Committee on Several Issues Concerning the Establishment of a Socialist Market Economic Structure adopted by the Third Plenary Session of the 14th CPC Central Committee brought forward the ideal that great efforts should be made in developing the capital market to push forward the reform and opening-up process and stale development of the capital market and to expand direct financing. According to the Decision，the major areas for developing the capital market are the following：