Due to the liberalization of the Chinese capital market in recent years, many foreign investors have entered the country's capital market. This article outlines the history and present state of China's relative policy, gathers and evaluates pertinent policies, examines the policy's turning points, and finally highlights the difficulties and issues at hand. Based on this, it examines how this act affects financial institutions and presents three arguments for why bringing in foreign money will strengthen the financial market's vibrancy, encourage its modernization, and increase its size. Drawing from the aforementioned analysis, this article puts forth a response strategy aimed at promoting financial institutions' risk control and institutional innovation through capital market liberalization. Additionally, it suggests that the state enhance its oversight of foreign capital inflows to ensure a consistent flow of capital. To sum up, as China's capital market becomes more open to the outside world, it will be important to take advantage of the chances for innovation and growth while also managing the risks and difficulties that come with it. This paper seeks to be able to offer pertinent recommendations for the market's continued development and liberalization.