Unveiling New Concepts: China on the move toward a modern capital market with Chinese characteristics
What will become of China's capital market? What elements will make it distinctive?
INTRO: China has brought a new concept into view as it is seeking to develop a "modern capital market with Chinese characteristics." Embodying a fusion of market rules and national realities, this fresh concept could attest to the country's growing confidence in pursuing modernization in the Chinese way.
What will become of China's capital market? What elements will make it distinctive? The speech of Chairman Yi Huiman of the China Securities Regulatory Commission shed light on the answer.
The vision aims to maximize market functions and better serve the real economy and investors.
"History has proven that a country's path of financial development should always be in line with its specific economic system, stage of development and social climate," said Yi Huiman, chairman of China's securities regulator, during the 2022 Annual Conference of the Financial Street Forum in Beijing.
For China, its capital market has been thriving based on the establishment and development of a socialist market economy.
—— Yi Huiman, chairman of the China Securities Regulatory Commission
Noting that China has made strides in capital market reforms over the past three decades, Yi said that a major achievement is the discovery of a new development path that not only abides by the "universal rules" of the capital market, but also demonstrates China's unique characteristics.
According to Yi, this development path is characterized by the country's efforts to promote a registration-based IPO system, improve the quality of listed companies, create its own risk-control mechanisms, guarantee "zero-tolerance" law enforcement, and strengthen investor protection.
While granting the capital market the right to make choices, China, based on its own realities, has adhered to a policy coordinating the functions of both market and government, with an emphasis on toughening regulations.
Yi underscored that there are five principles that must be followed, with the paramount one being the leadership of the Communist Party of China. Under the leadership, the country can better combine the power of market and government, and modernize the governance of the capital market.
The capital market should also prioritize serving the real economy in its development, with vigorous efforts to integrate into China's social and economic landscape, and help implement national strategies regarding technological independence and the development of modern industries.
Persistent efforts must go into optimizing the basic systems of the capital market, and the reform of registration-based IPO system should be elevated to a higher level, Yi said, also calling for major institutional innovation and greater scope of institutional opening-up.
The country must ensure that the bottom line for risk prevention shall never be crossed, and bring all types of financial activities under regulation.
Upholding the position of the people, it is also urged to ensure that the legitimate rights and interests of "small and medium-sized investors" are under solid protection, and weave a multi-layer "safety net" of insurance for investors.
"China's capital market has developed a culture featuring the formulation of systems, a non-interference attitude and zero-tolerance to irregularities," said Tian Lihui, a researcher with the Nankai University.
"Under the auspice of a competent government, the construction of the market is progressing step by step," Tian said, adding that government regulations and public participation are among the key features of China's capital market.
Li Zhan, chief economist with China Merchants Fund, said that decoding China's capital market requires the full understanding of the country's identity as a socialist market economy.
Li highlighted the coexistence of multiple types of ownership, the diversity of industrial categories, and the simultaneous development of companies of all sizes, saying that they are both features and advantages of the Chinese capital market.
In light of such variety, Yi said the country should grasp the "logic of valuation" for various types of listed companies, and to explore ways to build a valuation system with Chinese characteristics, so that market resources can be pooled into crucial spheres of the economy.
Listed companies, meanwhile, need to boost their core competencies while strengthening investor relations management, he said.
Currently, over 95 percent of shares on China's A-share market are held by domestic investors. Commenting on this, Yi said that Chinese financial institutions should be more independent-minded in their decision-making and research, and avoid following market trends blindly.
He also noted that there would be another three-year campaign to improve the quality of listed companies, and close attention would be paid to the challenges faced by the real estate sector, vowing more efforts to cater to real estate developers' demand for financing.
Ensuring the "rules-abiding and sound" development of the capital market has remained high on the Chinese government's agenda. At a tone-setting central economic work conference held in December 2021, for instance, policy makers said that the country must "correctly grasp the features and behavior patterns of capital", and "give full play to capital's positive role as an essential factor of production while reining in its negativities" -- an approach depicted as setting up "traffic lights" for the more effective use of capital.Â
Looking like a new, improved world is emerging.