Towards High-Quality Development: Capital Market on Brink of Comprehensive Reform

The anticipation for further comprehensive deepening reform of the capital market is continuously strengthening. Wu Qing, the chairman of the China Securities Regulatory Commission (CSRC), recently stated at the 2024 Financial Street Forum Annual Conference that the CSRC is following the deployment of the Third Plenary Session of the Central Committee, studying and formulating a comprehensive deepening reform implementation plan for the capital market. Industry institutions and individuals generally believe that in the upcoming further comprehensive deepening reform of the capital market, promoting coordinated development of investment and financing and driving the development of new qualitative productive forces are expected to become the focus of the reform.

The atmosphere for further comprehensive deepening reform of the capital market is gradually thickening. Wu Qing pointed out that the CSRC will adhere to the direction of marketization and legalization, deepen the comprehensive reform of investment and financing in the capital market, improve the system and mechanism for promoting high-quality development of listed companies and enhancing the market's inherent stability, and address key and difficult issues such as pricing in primary and secondary markets and investor protection that constrain the market's function. Typical cases will be used as entry points to drive system improvement. Strengthen reform collaboration, grasp the timing and effectiveness, ensure that various reform measures are operable, implementable, and predictable, and achieve practical results.

Advertisement

Recently, the CSRC held a special symposium on further comprehensive deepening reform of the capital market, where it had in-depth exchanges with experts, scholars, and representatives of financial media leaders, fully listening to opinions and suggestions. Wu Qing emphasized that China is at a critical period of moving towards Chinese-style modernization, and the capital market is also at a critical stage of transitioning to high-quality development.

Looking at the reform process of the capital market, in September 2019, the CSRC held a comprehensive deepening reform work symposium, proposing 12 key tasks for comprehensive deepening reform of the capital market (i.e., "Deep Reform 12 Articles"). After five years of reform practice, China's capital market has undergone profound structural changes, with the basic system continuously improved, the market structure significantly optimized, the multi-level market system continuously improved, the quality of listed companies significantly enhanced, and high-level institutional opening steadily promoted.

As the reform enters deep waters, further comprehensive deepening reform of the capital market has also been put on the agenda. In June of this year, to implement the deployment of the Central Financial Work Conference and the new "Nine National Articles," Wu Qing and other members of the CSRC leadership team successively conducted research in Shenzhen, Guangzhou, Shanghai, Beijing, and other places around further comprehensive deepening reform of the capital market. Wu Qing pointed out that the CSRC is deeply conducting a comprehensive assessment of capital market reforms such as the registration system, and based on this, it will urgently study and plan a package of measures for further comprehensive deepening reform of the capital market.

The Third Plenary Session of the 20th Central Committee of the Communist Party of China made a series of important arrangements for capital market reform and also pointed out the direction for further comprehensive deepening reform of the capital market. In July of this year, when the CSRC Party Committee conveyed and implemented the spirit of the Third Plenary Session of the 20th Central Committee, it pointed out that this plenary session made clear arrangements for comprehensive deepening reform of the capital market. The CSRC needs to closely focus on promoting Chinese-style modernization as the central task, firmly grasp the high-quality development as the hard truth of the new era, highlight strengthening foundations and strict supervision, adhere to reform to assist stability, promote development, optimize services, and strengthen the team, and unswervingly push forward the comprehensive deepening reform of the capital market.

Promote coordinated development of investment and financing. The investment function and financing function are two sides of the capital market's function, interacting with each other and jointly promoting the healthy development of the capital market. From the perspective of reform expectations, achieving coordinated development of the capital market's investment and financing functions is expected to become an important aspect of the new round of reforms.

The "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization" points out the need to "improve the capital market function where investment and financing are coordinated" and "establish a long-term mechanism to enhance the inherent stability of the capital market." The CSRC emphasizes that it must adhere to using reform methods to solve deep-seated contradictions and problems that constrain the smooth and healthy development of the capital market and enhance the inherent stability of the capital market.Wu Qing emphasized the need to further solidify the foundation for the coordinated development of investment and financing. First, achieve an overall balance in quantity. It is necessary to accelerate the implementation of guidelines for medium and long-term capital entering the market, vigorously develop equity-based public funds, adopt differentiated strategies to unblock and alleviate the pain points for medium and long-term capital entering the market, and build a policy system that supports "long-term capital for long-term investment". Implement various measures to ensure the capital market performs its financial "five major articles". Further improve the coordinated development mechanism between primary and secondary markets to make the scale and pace of market financing more scientific and rational. Second, achieve continuous improvement in quality. Focus on improving the quality of listed companies as the "key point", guide and supervise listed companies to improve corporate governance, further enhance transparency, increase dividend and repurchase efforts, implement market value management responsibilities, continuously enhance investment value, and create long-term returns for investors. Third, achieve effective checks and balances of rights and responsibilities. In response to the advantages of listed company major shareholders and actual controllers in terms of equity, funds, and information, strengthen the whole-chain supervision of issuance and listing, information disclosure, share reduction, and delisting. Strengthen the necessary constraints on the behavior of major shareholders and other "key minorities" to effectively protect the legitimate rights and interests of small and medium investors, making financing more standardized and investment more secure.

In fact, at the Capital Market Reform and Institutional Investors Symposium held by the China Securities Regulatory Commission (CSRC) in August this year, Wu Qing stated that efforts will be made to build a policy system for "long-term capital for long-term investment" and improve the coordinated functions of investment and financing in the capital market. Participants at the meeting said that investment and financing are two sides of the same coin in the function of the capital market, and their coordinated development is of great significance to the long-term and healthy development of the capital market.

Guotai Junan Securities believes that under the environment of tightening financing, the construction of the investment side is the current focus, and this year's policies have also been mainly centered on the investment side, including introducing medium and long-term incremental funds, improving the quality of listed companies, and restricting the reduction of listed company shareholders. Shanxi Securities pointed out that supervision has clarified the direction for the construction of the capital market. The investment side aims to create a policy system that supports "long-term capital for long-term investment", promote the cultivation of long-term capital and patient capital, and help funds shift from short-term speculation to value investment. The quality of listed companies is related to the inherent stability of the capital market, and improving quality is the top priority in the governance of listed companies. Supervision requires listed companies to enhance the transparency of information disclosure and guide enterprises to improve corporate governance levels and capabilities.

Serving the development of new quality productive forces is an inescapable responsibility of the capital market. Further enhancing the capital market's support for new quality productive forces is expected to become the focus of the comprehensive deepening reform of the capital market. The CSRC emphasized further enhancing the capital market's inclusiveness and adaptability to technological innovation, cultivating and strengthening patient capital, doing well in financial "five major articles", and guiding more resource elements to gather towards new quality productive forces.

Wu Qing said that the CSRC will focus on supporting high-quality innovative enterprises, enhance institutional inclusiveness and adaptability, reform and optimize the issuance and listing system, grasp the implementation of the newly released "six mergers and acquisitions", and introduce a batch of typical cases as soon as possible. He also said that it is necessary to lead and drive various advanced production factors to gather towards the development of new quality productive forces. Efforts will be made to cultivate and strengthen patient capital, comprehensively use various tools such as stocks, bonds, and futures, improve the support policies for venture capital and private equity investment "raising, investing, managing, and exiting", and guide better investment in early-stage, small-scale, long-term, and hard-tech areas.

Mao Hansong, Secretary of the Party Committee and Dean of the China Securities Finance Research Institute, said that developing new quality productive forces is an inherent requirement and an important focus for promoting high-quality development. The capital market has important functions such as sharing innovation risks, promoting the formation of innovation capital, and optimizing resource allocation. High-quality enterprises representing the development direction of new quality productive forces can also bring more source water to the capital market.

Chen Long, Chief Economist of Chuanchai Securities, told reporters that as the core platform for resource allocation, the capital market plays a key role in promoting the development of new quality productive forces. It can not only promote the formation of innovative capital and optimize the allocation of innovative resources to help industrial upgrading and transformation, but also promote the improvement of total factor productivity, providing strong support for the development of new quality productive forces.

Chen Long believes that in order to better serve the development of new quality productive forces, the capital market should focus on key areas, increase support for high-tech and strategic emerging industries, promote the transformation of scientific and technological innovation results into real productive forces, help traditional industries upgrade and transform, promote traditional industries to use new technologies and processes for upgrading and transformation, and improve product added value and market competitiveness. Focus on frontier fields such as artificial intelligence, big data, and cloud computing, and cultivate a group of emerging industries and future industries with global competitiveness. At the policy level, increase support, strengthen the cultivation and guidance of scientific and technological innovation enterprises, and encourage long-term funds such as pension funds, insurance funds, and enterprise annuity funds to enter the capital market. At the market level, optimize the investment environment, improve the information disclosure system, reduce transaction costs, actively promote international cooperation and exchanges, and attract more high-quality capital inflows.