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Observation|Capital market reform: How effective are measures to activate the stock market?

Observation|Capital market reform: How effective are measures to activate the stock market?


The Central Financial Work Conference held at the end of October reiterated the “active capital market” and pointed out that the hub function of the capital market should be better used to promote the deepening and solidification of the stock issuance registration system. Previously, the China Securities Regulatory Commission has also stated on many occasions that it will promote the comprehensive implementation of the stock issuance registration system in a deeper and more solid manner and ensure market entry.

How can the stock issuance registration system be deepened and implemented? How can measures to activate the stock market be effective? China News Network exclusively interviewed Tian Xuan, deputy dean of Tsinghua University PBC School of Finance, to clarify the context for the next development of the capital market.

 Finance essentially serves the real economy

In November 2018, the news of the establishment of the Science and Technology Innovation Board and the pilot registration system reform were officially announced. In the past five years, the registration-based reform has adopted a reform path of piloting first, increasing first and then accumulating, and gradually rolling out. The reform has covered from the Science and Technology Innovation Board to the GEM, the Beijing Stock Exchange, and then to the Shanghai and Shenzhen main boards, and the capital market has undergone profound changes.

At the end of October, the national financial work conference was held again after a lapse of six years, and it was clearly stated that “to better utilize the hub function of the capital market and promote the deepening and solidification of the stock issuance registration system”, it pointed out a new direction for the registration system reform.

In Tian Xuan’s view, “This time the central government proposed to deepen and implement the stock registration system, it hopes to carry out a deep reform from a full-chain ecosystem, truly allowing the market to play a decisive role in resource allocation, and be able to cooperate with The docking of internationally advanced capital markets allows the capital market to play a pivotal role. Because the capital market essentially connects the two ends of investment and financing, it not only needs to help finance become more solid, serve the real economy, but also help companies better raise funds. This is the capital market Very important feature.”

At present, my country’s capital market is still insufficient in its ability to serve the real economy. How will the next step help the capital market play its role as a “wealth reservoir” and “economic booster”?

“Overall, there is still a lot of room for improvement in both the primary and secondary capital markets.” Tian Xuan said that taking the primary capital market as an example, it is necessary to increase the reform of the venture capital market, such as taxation. Corresponding changes must be made, and the tolerance for risk and failure must also be increased accordingly.

“In terms of the general logical direction, the central government has made it clear that it should serve the real economy honestly and not ‘idle’ in the financial ‘shift from reality to virtuality’. Nowadays, many people who are engaged in ‘channel business’ have to pay extra costs. Finally, When it comes to the real economy, financing costs are very high. We need to return the financial industry to the essence of the service industry and truly serve those enterprises with high growth potential that can help China remain invincible in the future international competition. To play the role of financial ‘reservoir’ and ‘booster’.”

  Capital market must produce wealth effect

In addition to connecting investment and financing, the capital market also connects investors.

“The vast majority of China are individual investors, and behind these 200 million retail investors are thousands of families. They invest their money in the stock market and are motivated by profit-seeking.” Tian Xuan emphasized, “So the investment attributes of the capital market are very important. We need the capital market to provide investors with reasonable returns and generate wealth effects. If investors make money in the capital market, problems such as lack of confidence and sluggish domestic demand can be solved.”

However, currently, there are problems such as fraudulent issuance, insider trading, and financial fraud during the stock issuance process, and many investors do not have the ability to identify them. How to provide investors with reasonable returns while safeguarding their legitimate rights and interests?

Tian Xuan believes that when it comes to the registration system, it is “walking on two legs”. The first leg is to let the market play a decisive role in resource allocation; the second leg can be summarized as “severe punishments”, which is the rule of law. The in-depth reform of the registration system is also another important starting point for advancing the registration system in depth.

In terms of promoting the rule of law, Tian Xuan mentioned that the first is administrative fines. After the new Securities Law was revised, the maximum fine was increased to 20 million yuan, which is an improvement. However, if you want to create sufficient deterrence, you can impose a fine that is a multiple of the amount of the violation.

“The second is the class action system. There must be such a mechanism to allow those small and medium-sized investors who do not have the time, ability, and energy to sue illegal enterprises. Kangmei Pharmaceutical is a good example, and it should be promoted more vigorously to punish illegal and counterfeiting companies. There will be greater pressure on corporate finances. The third is to unify the criminal law and the securities law, so that the person in charge of the company who engages in fraudulent issuance and financial fraud shall bear criminal responsibility.”

  Allowing companies with no future to delist smoothly

The capital market needs a steady stream of “living water”, but current problems such as low return on investment and difficulty in entering the market for medium and long-term funds have become “blocking points” in the capital market. If we want to activate the capital market, improving the quality of listed companies and continuously improving the delisting system are key, and they are also the focus of deepening the registration-based reform.

How to improve the quality of listed companies? Tian Xuan believes that on the one hand, the main business of listed companies needs to have high growth potential and represent the future development direction of technology; on the other hand, it also needs to have a good corporate governance structure.

“Corporate governance generally includes two categories, internal governance and external governance. Internal governance mainly relies on supervision and incentives. At present, the supervision of listed companies in my country mainly relies on the board of directors, but the board of directors’ supervision is not enough. On the one hand, the board of directors is controlled by major shareholders or actual controllers; on the other hand, the board of directors is controlled by major shareholders or actual controllers; On the one hand, some independent directors are neither independent nor ‘sensible’. In terms of incentive mechanisms, executives mainly rely on bonus salaries and do not have much equity incentives, so both supervision and incentive mechanisms need to be strengthened.”

In addition, the company’s external governance structure is relatively weak, and there is not a very complete market for control rights. Tian Xuan explained that the control market is the “barbarian at the door”, which can supervise listed companies from the outside and force them to improve their corporate systems. “We currently rely more on regulatory authorities such as the China Securities Regulatory Commission to issue documents, and the corporate governance structure still needs to be adjusted.”

In his view, the registration system is an ecosystem reform, and the core logic is to form a virtuous cycle, survival of the fittest, and allocate scarce public resources on the best assets to help the best companies obtain financing and continue to develop.

my country’s capital market has developed over the past 30 years, with more than 5,000 listed companies. Tian Xuan mentioned that in recent years, companies have been listed faster and faster, but they have not done a good job in delisting, creating many “zombie companies” or sunset companies in the capital market. In the market, these enterprises will also encounter chaos such as shell preservation, shell passing, shell buying, shell selling, and shell borrowing.

“Therefore, the capital market needs to strengthen the delisting system and further optimize the delisting standards for financial, transactional, regulatory and major violations in accordance with the requirements of the new delisting regulations, so that companies with no development prospects and no investment value can Smooth and stable delisting, truly connecting the entry and exit ends, and at least allowing them to reach a relative balance, this is a very important point in the next step of the registration system reform.”



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