By the end of 2002, the Shanghai and Shenzhen stock exchanges will probably have merged, with another, Nasdaq-type board being established. Interest rates were deregulated recently, and a steady stream of incremental reforms can be reasonably expected. Foreign banks may be allowed in more widely within a five-year period. In order to develop the market mechanism, access to external financing will be needed, through both bank and public equity. The Communist mindset makes for excessive government controls and bureaucracy, especially the constant need for approvals.
Regulations tend to be arbitrary and arbitrarily enforced.
Political institutions tend to be anti-innovation. Corruption remains a problem, with Fujian province reputably the worst. The biggest headache for multinationals is probably the distribution system, compounded by the less than adequate infrastructure and language barriers. However, plans are afoot to allow foreigners to take control of their own distribution system within three years. This will give increased access to the domestic market and to franchising opportunities, which will in turn open up the retail sector significantly.