context: Regulators have been working to arrest equity market declines since Q2 2023, including through active market involvement and regulating activities that could create market fluctuations like quantitative trading. The Opinions integrate many themes that Beijing has been hammering for over a year, especially integrating increased guidance of financing to favoured sectors. The State Council has similarly released important documents guiding capital markets’ development twice before in 2004 and 2014, meaning the new Opinions will likely guide markets over the coming decade.
The State Council released several Opinions to guide the development of capital markets on 12 April. The Opinions outline goals for capital markets
- the creation of a basic framework to support markets’ high-quality development over the next five years
- a highly adaptable, competitive and inclusive capital market basically in place by 2035
- a high-quality capital market that matches China's status as a financial powerhouse in place by 2050
The document is the beginning of a new ‘1+N’ system for the capital market, explains Wu Qing 吴清 CSRC (China Securities Regulatory Commission) head, providing a blueprint for the capital market the centre intends to create. CSRC, SSE (Shanghai Stock Exchange) and SZSE (Shenzhen Stock Exchange) have already called for comments on a number of new measures and revisions to existing ones to implement the Opinions.
Regulators are especially looking to improve market operations by focusing on raising firm quality through
- more strictly regulating which companies get to list
- raising revenue and profit thresholds
- increased disclosure requirements
- strict regulation of listed companies
- increase disclosure requirements
- restrictions on share reductions by high-level management
- preventing operations that reduce firm value but enrichen large shareholders
- focus on main business
- encouraging more dividend sharing
- punishing companies that do not share dividends with warnings and possible delisting
- increasing delisting of non-compliant and weak firms
- creating preferential policies for firms involved in the five sectors targeted for financing at December 2023’s Central Financial Work Conference
Further developing a long-term investment mindset, especially by increasing the amount of mutual funds and institutional investors in the market, is also a top objective.
The measures correctly identify problems facing markets and address them with appropriate force, a number of experts and industry insiders told 21st Century Business Herald. The Opinions seek to regulate the capital market’s entirety, assigning responsibility to various players including high-level managers and underwriters, notes Chen Li 陈雳 Chuancai Securities chief economist.
Beijing is moving from a system centred on creating institutions, not becoming involved and no tolerance for bad behaviour, to one more inclined to push high-quality development through strong regulation and risk mitigation contends Shengwan Hongyuan Securities.