companies at present, 33 of which are domestic fund companies, and the rest are Qualified Foreign Institutional Investors(QFIl)or joint ventures, which were allowed to enter the asset management industry in 2003. There are no pension funds or government pension system in place. Under the old central planning regime, pensions and other social welfare plans were provided and implemented by individual SOEs. With many SOEs privatized or bankrupt in recent years, these services are no longer available for an increasing number of senior employees and workers Establishing a feasible pension system in the near future is also one of the burning issues for China Presently there are no hedge funds that implement long-short " strategies as short selling is prohibited in China Insert Figure l here. Figure 1 depicts the current structure of the entire financial system. In what follows we will describe and examine each of the four sectors of the system. In addition to the standard sectors of banking and intermediation and financial markets, we will document the importance of the non- standard financial sector and growth of this"other sector" as China s economy becomes more integrated into the world economy 1.2 The size and efficiency of the financial system: Banking and markets For a comparison of countries, we follow the law and finance literature and in particular the sample of countries studied in La Porta, Lopez-de-Silanes, Shleifer, and Vishny(hereafter LLSV, 1997, 1998, 2000). Their sample includes 49 countries, but China is excluded. In Table 1, we compare China's financial system to those of lLSv sample countries, with some measures for financial systems taken from Levine(2002)and Demirguc-Kunt and Levine(2001) Insert Table 1-A here We first compare the size of a country's equity markets and banks relative to that country 's gross domestic product(GDP)in the first panel of Table 1-A. Chinas stock markets are smaller than most of the other countries, both in terms of market capitalization and the total value traded as fractions of gdP In order to measure the actual size of the market. "total value traded" is a better measure than"market capitalization, because the latter includes non-tradable shares while the former measures the fraction of total market capitalization traded in the markets, or the"floating supply of the market (we further discuss this issue in Section IV below ). By contrast, Chinas banking system is much more important in terms of size relative to its stock markets, with its ratio of total bank credit to GDP (1. 11) higher than even the german-origin countries( with a weighted average of0.99). However, when we consider bank credit issued (or loans made )to the Hybrid10 companies at present, 33 of which are domestic fund companies, and the rest are Qualified Foreign Institutional Investors (QFII) or joint ventures, which were allowed to enter the asset management industry in 2003. There are no pension funds or government pension system in place. Under the old central planning regime, pensions and other social welfare plans were provided and implemented by individual SOEs. With many SOEs privatized or bankrupt in recent years, these services are no longer available for an increasing number of senior employees and workers. Establishing a feasible pension system in the near future is also one of the burning issues for China. Presently there are no hedge funds that implement “long-short” strategies as short selling is prohibited in China. Insert Figure 1 here. Figure 1 depicts the current structure of the entire financial system. In what follows we will describe and examine each of the four sectors of the system. In addition to the standard sectors of banking and intermediation and financial markets, we will document the importance of the non￾standard financial sector and growth of this “other sector” as China’s economy becomes more integrated into the world economy. II.2 The size and efficiency of the financial system: Banking and markets For a comparison of countries, we follow the law and finance literature and in particular the sample of countries studied in La Porta, Lopez-de-Silanes, Shleifer, and Vishny (hereafter LLSV, 1997, 1998, 2000). Their sample includes 49 countries, but China is excluded. In Table 1, we compare China’s financial system to those of LLSV sample countries, with some measures for financial systems taken from Levine (2002) and Demirgüç-Kunt and Levine (2001). Insert Table 1-A here. We first compare the size of a country’s equity markets and banks relative to that country’s gross domestic product (GDP) in the first panel of Table 1-A. China’s stock markets are smaller than most of the other countries, both in terms of market capitalization and the total value traded as fractions of GDP. In order to measure the actual size of the market, “total value traded” is a better measure than “market capitalization,” because the latter includes non-tradable shares while the former measures the fraction of total market capitalization traded in the markets, or the “floating supply” of the market (we further discuss this issue in Section IV below). By contrast, China’s banking system is much more important in terms of size relative to its stock markets, with its ratio of total bank credit to GDP (1.11) higher than even the German-origin countries (with a weighted average of 0.99). However, when we consider bank credit issued (or loans made) to the Hybrid