Further reform of China's capital markets to boost high-quality development
Note: The following article is taken from the Chinese-language "Commentaries on International Affairs".
China’s Office of Financial Stability and Development Committee under the State Council on Saturday announced that the country will further deepen the reform of its capital market and enhance its role of serving the high-quality development of its real economy. The committee also highlighted the newly launched technology and innovation board, known as the STAR Market, at the Shanghai Stock Exchange, which is expected to play a pivotal role in boosting new momentum for future growth.
Since China embarked on reforms of its capital market in 1990, the country has introduced a series of measures, including the mixed-ownership reform of its state-owned enterprises. In 2014, the country rolled out an overall development blueprint for its capital markets including stock, bond and futures markets. And a week ago, the China Securities Regulatory Commission said that the overall plan for China’s capital market reform had basically taken shape. And the Office of Financial Stability and Development Committee’s latest announcement put the STAR Market in the spotlight.
As the first submarket of China’s capital market to adopt the registration-based initial public offering (IPO) system, STAR relies heavily on information disclosure. Since its launch over a month ago, 28 of the 150 plus companies that submitted applications have successfully floated on the board. Authorities have since recommended the practices of registration-based IPO system be promulgated to a wider area step by step. The Office of Financial Stability and Development Committee also decided to introduce measures to cultivate various types of institutional investors with long-term capital inflows.
The goal of China’s capital market reforms is to serve its real economy. According to statistics, 80 percent of the enterprises in developed countries borrow funds through direct financing channels such as financial markets. By comparison, only 15 percent of China’s enterprises are able to do so. Only by further reform of the capital markets, can resources be more efficiently allocated to good-quality companies and thus their creativity and competitiveness can be further stimulated.
China’s capital market reforms have won confidence votes from international institutions, such as the FTSE Russell and MSCI. Both index providers have decided to boost the weight of China A-shares in their widely-tracked global benchmarks to 15 percent. As Beijing continues to streamline its capital market reform plan by enhancing the quality of listed-companies as a key aspect, more institutional investors are expected to be attracted to the market. And that will inject long-term momentum into the sustainable development of China’s capital market which, by providing more ammunition to the real sector, will boost high-quality growth in the entire economy.