On 27 February 2007, Chinese equity markets fell almost 9%. Hours later other global markets plunged far and fast, including those in Europe and the U.S. Such a link between China’s equity markets and others was unprecedented. Analysis conducted in the aftermath confirmed that capital flows between China and other markets are highly controlled, and therefore were not the main cause of changing stock prices. Subsequent volatility in the Chinese markets has not spilled over to other markets. Nonetheless, global investors are now watching China’s markets closely.

The purpose of this article is to provide background on the development of the Chinese equity markets in order to underscore the point that the recent volatility of China’s stock values was a result of domestic capital and an array of domestic decisions.