context: Domestic stocks continue to do poorly. The CSI 300 Index, which tracks the largest listed firms, has fallen 10 percent since its January high. Beijing is likely worried, but not too worried, as the financial system is not as exposed to stocks as in other major economies. Instead, policymakers are looking to strengthen capital markets while emphasising structural reform. Beijing sees private finance, especially private equity, as key to funding strategic industries at the centre of the country’s economic transition.
CSRC (China Securities Regulatory Commission) on 18 August held a media event at which it outlined more policies to activate capital markets. These include
investment reforms
- supporting equity funds development
- easing registration of index funds
- further reducing fees
- encouraging managers to make countercyclical investments
- increasing types of securities in which funds can invest
financing
- opening more pathways for tech companies to list and issue bonds
- improving dividend payout mechanisms and allowing investors to benefit more quickly
- easing stock buybacks
- easing mergers
- increasing the balance between primary and secondary markets to improve counter-cyclical adjustments
exchange
- lowering transaction processing fees
- including ETFs (exchange-traded funds) in lending and repurchase agreements
- furthering shareholding reduction
- studying greater expansion of securities exchanges
The objective of creating an active capital market is to increase the proportion of direct funding for important enterprises, contends Dong Shaopeng 董少鹏 Securities Daily deputy director. Capital markets are those where capital allocation is efficient, not those where transaction volumes are high or bubbles form. Creating a firm foundation for capital markets requires
making listed firms more attractive for investment
- more transparency and reporting
- better marketisation
encouraging institutional investors to guide value investing
- developing equity funds as a way to encourage marketisation and pricing
- more shareholder responsibility in management
solving long-term contradictions
- further shareholder reductions, especially in secondary markets
- letting dividends go to more investors, not just a small group of pre-market shareholders
- lowering transaction costs for all financial products