Developing the Capital Market System to Speed Up Transformation of the Pattern of Economic Development

From: English Edition of Qiushi Journal Updated: 2011-09-20 13:31
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 The recession brought on by the international financial crisis has been seriously impacting China’s economic and social development since the second half of 2008. In coping with the impact of the crisis, China has actively worked to create conditions for the development of the capital market, promoted steady and healthy development of the market and withstood the severe test presented by the international financial crisis to build a strong foundation for “ensuring growth, expanding domestic demand and adjusting the economic structure.”

 1. We are making good use of the role of the market in allocating resources and increasing support for economic development. We have been gradually carrying out reform of the system for initial public offerings (IPO), steadily introducing IPOs and actively worked to expand direct financing. We carried out plans to revitalize the iron and steel industry and the auto industry and supported the efforts of large state-owned enterprises, private enterprises and small and medium-sized enterprises to issue stocks and become listed on the stock market. We improved the regulatory system for and made innovations in the techniques and methods for the merging and reorganization of enterprises to provide support for improving and upgrading the industrial structure. A total of 99 enterprises issued stocks and became listed companies and 150 listed companies issued bonds in 2009, resulting in a cash injection of 456.2 billion yuan in mainland enterprises. Another 56 companies carried out major asset reorganization with transactions totaling 369.4 billion yuan and 12 listed companies spent a total of 53.1 billion yuan to purchase overseas operations. We actively supported the efforts of listed companies to carry out bond financing of operations, expanded the scale of the bond market, encouraged listed commercial banks to trade bonds in the stock market and made progress in unifying and interconnecting bond markets. Last year saw 45 enterprises issuing company bonds that raised a total of 73.49 billion yuan. 

 2. We gradually set a new board in the Stock Exchange of Hong Kong called Growth Enterprise Market (GEM) to help transform China into an innovative country. Last year saw the promulgation and implementation of the Interim Procedures for Management of Enterprises Making Initial Public Offerings and Becoming Listed on the Growth Enterprise Market, and the gradual introduction of regulations on management of the eligibility of the investors in GEM in an effort to develop a legal framework suited to the characteristics of the new board. The new regulations cover verification of securities issuing, transactions in the new board, information disclosure and market supervision and regulation. The new GEM was officially opened on October 23, 2009. The opening of the new board was a major bright spot in China’s bold efforts to cope with the last year’s difficulties facing the country and the international financial crisis as well as a major bright spot in the global capital market last year. 

 3. We intensified efforts to develop the futures market to strengthen its ability to serve the national economy. We set up and put into operation a uniform system for opening accounts in the futures market and defined a policy for overseeing and regulating banks that hold deposits and manage margins in the futures market to meet the practical need for the futures market to promote economic development. We tightened regulation and supervision of overseas futures hedging by licensed enterprises and operations of overseas subsidiaries of futures firms and improved the early warning system for market risks. We improved the regulations for futures contracts and trading in the various types of listed futures and introduced trading in more commodities such as threaded steel, wire rods, early-season indica rice and PVC, bringing the total number of listed futures up to 23. The basics of a system of futures trading in bulk stock important to the national economy and people’s lives are now in place, significantly improving the ability of the futures market to serve relevant enterprises in an industrial chain and ensuring overall stability in the operation of the market. Total transaction volume of futures for commodities in China last year was the highest in the world.    

 4. We improved the competitiveness of the market entities to promote healthy industrial development. We launched in 2009 a “campaign to improve the regulation of listed companies” to improve the management of listed companies and the information that is released, strengthen supervision and regulation of information disclosure concerning abnormal fluctuations of stock prices and further standardize the operation of listed companies. We improved the policy for setting up a service network for securities trading, actively supported the efforts of securities firms to develop combined financial planning, steadily expanded the trial of direct investment and worked to make securities firms better geared to the market. We supported the innovative development and trustworthy operation of fund management companies by carefully introducing mutual fund type of asset management for special clients and a system for fund appraisal and management of sales expenses. Chinese securities firms had total assets of 2 trillion yuan at the end of 2009 and realized a net profit of 93.3 billion yuan, up 94%, year-on-year. Chinese fund management firms managed a variety of assets worth a total of 3.1 trillion yuan, up 40% from the previous year.

 5. We ensured that the market operated in accordance with the law and maintained normal order in the market. We have done a great deal to improve the legal framework for securities and futures trading in the past year, formulating or revising 39 government department documents defining regulations and standards, and cancelling 41 documents after a careful review. We have severely cracked down on “rat trading,” unfair transactions and transfers of interest, concentrating investigation and prosecution on a number of cases with a high profile in the market and significant impact on society, such as cases involving “rat trading” in the Rongtong Fund and the Gaochun Ceramics insider trading case. We investigated 419 cases during the year, fined or demoted 33 organizations and 218 involved individuals, banned 52 individuals from trading in the market and helped public security organs open and resolve nearly one hundred cases of illegal securities trading, resulting in the capture of more than 300 criminal suspects.

 We are now implementing the strategic policy decisions of the central government and closely integrating efforts to maintain steady and rapid economic development with efforts to transform the pattern of economic development so that development promotes transformation and vice-versa. This has not only raised the requirements for the reform and development of the capital market but also provided a rare opportunity and vast potential for its healthy development.

 The China Securities Regulatory Commission will be working for some time to come on the demand of the central government to “actively work to expand direct financing and guide and standardize the capital market to ensure its sound development” by ceaselessly working to develop the fundamental market system, ceaselessly working to expand the breadth and depth of the market, and strengthening and improving market supervision to better promote overall economic and social development, closely relating all efforts to accelerating transformation of the pattern of economic development.

 October 30, 2009, initial public offering for the first 28 companies listed on the Chinext Stock Market in the Shenzhen Stock Exchange goes smoothly. Representatives of the first group of listed companies pose for a group photo after the opening bell./ Photo by Xinhua reporter Peng Yong

 1. We will be accelerating efforts to develop a multi-level market system and promote transformation of the pattern of economic development. We will be steadily developing the market for the main board and small and medium-sized boards and actively supporting qualified enterprises in their efforts to become listed and refinance. We will accurately assess the functional position of the GEM, improve the rules for supervision and regulation of securities issued in the GEM, actively work to expand the size of the market for the GEM based on strict investigation of applicants and strengthen the ability of the capital market to promote independent innovations. We will also be working to expand markets outside the stock market, working out specific plans for expanding trials of the system of brokerages for share transfers and working out a general plan for developing markets outside the stock market. We will be actively working to develop the bond market, develop more types of corporate bonds and methods for their issue, improve the effectiveness of bond examination and verification, and expand the scale of corporate financing through bonds. We will be working out regulations and arrangements for overseas enterprises wishing to be listed in China in line with the need for economic development and reform and opening of the capital market.

 2. We will be strengthening the basics of the system and improving the operating mechanism of the market. We will be carrying out a trial of allowing securities firms to engage in financing and floating bonds, improving the relevant rules as needed as the trial proceeds and carefully expanding the scope of the trial. We will be slowly introducing stock index futures to ensure their stable operation. We will continue to deepen reform of the system for issuing securities, optimize conditions and procedures for issuing them, strengthen supervision for the inquiry process and the fixing of prices and improve the pricing mechanism for the primary market.

 3. We will be improving the mechanism for merging and delisting listed companies and optimizing the channels and methods for resource allocation. We will be encouraging some companies that have converted to a stockholding system and become listed to merge or reorganize and issue more stock to a certain group and then become listed in their new form to reduce competition within an industry and reduce the number of connected transactions in connection with the campaign to improve the performance of listed companies through mergers and reforms. We will be improving institutional arrangements to make mergers and reorganizations more market oriented and improve their quality and performance. We will be actively working to reform the delisting system for the main board and the small and medium-sized boards to prevent and combat manipulation of profits to avoid delisting.

 4. We will be working to increase transparency in the capital market and improving the way information is released. We will be conscientiously working to carry out the government’s responsibility to make information public by releasing information on supervision and regulation in a timely and accurate manner. We will be improving the way information is released to the news media, working out a system for openly soliciting comments and strengthening restraints on all administrative actions to make market supervision and regulation more open and transparent. We will be calling on listed companies to improve their internal control system for information disclosure to ensure that information is released in a fair manner in accordance with the law. We will be strengthening supervision and regulation for disclosure of important information such as stock issues, listings, mergers and reorganizations to prevent release of deceitful misinformation and insider trading. We will be improving the system of standards for disclosure of information on the capital market to increase the overall level of transparency in the market. 

 5. We will be working to ensure order in the market by safeguarding openness, fairness and impartiality, and guiding and standardizing the market to ensure its sound development. We will be doing a great deal to strengthen the legal and institutional framework for market operations. In conjunction with the revision of the Law of the People’s Republic of China on Securities Investment Funds, we will introduce the Regulations on Supervision and Regulation of Listed Companies to strengthen routine supervision and regulation for listed companies, securities and futures trading firms and brokerages to improve the mechanism for uncovering and processing evidence of violations of laws and regulations. This will help us crack down on insider trading, “rat trading” and violations of laws and regulations that infringe on the interests of listed companies so we can ensure good order in the market by safeguarding openness, fairness and impartiality. We will be providing more education and services for investors to protect their lawful rights and interests, especially small and medium-sized investors.

(From Qiushi in Chinese, No. 6, 2010)

Note:  Author: Chairman of the China Securities Regulatory Commission

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