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Dialogue With Prof. Wu Xiaoqiu, President Of China Capital Market Research Institute, Renmin University Of China: Promoting The Internationalization Of China'S Capital Market Is The Goal Of The Next 30 Years

2020/11/26 13:23:00 0

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In 1990, Shanghai and Shenzhen exchanges were established one after another, and China's capital market was officially announced.

In this year, a young student from Jiangxi Province successfully passed the defense and obtained his doctorate in economics.

Four years later, the young student was transferred to the former Department of Finance and finance of Renmin University of China as a professor of securities research in finance specialty due to the need of work and the transfer of research interest. In October 1995, he was employed as the first doctoral supervisor of securities investment in China.

This young student was Wu Xiaoqiu, former vice president of Renmin University of China and President of China Capital Market Research Institute.

As an important pioneer of China's securities theoretical research, securities teaching and teaching material system, as well as the earliest domestic tutor to cultivate securities doctoral students, Wu Xiaoqiu's work experience is closely related to the development of domestic capital market. His in-depth and unique research on macro-economy, financial reform and capital market has made him one of the most influential experts in the field of capital market research in China.

In Wu Xiaoqiu's view, the establishment of the Shanghai and Shenzhen Stock Exchange in 1990, the split share structure reform in 2005 and the registration system reform in 2019 are three monuments in the 30-year history of China's capital market. Wu Xiaoqiu will elaborate on how to carry out the comprehensive registration system reform in the future and where China's capital market will go in the next 30 years.

Three monuments in 30 years

21st century: what are the key reform nodes of domestic capital market in the past 30 years?

Wu Xiaoqiu: China's capital market started with the establishment of Shanghai and Shenzhen stock exchanges, that is, at the end of 1990.

At that time, it was difficult for enterprises to finance, and the international environment was very severe. It was the original intention of Shanghai and Shenzhen Stock Exchange to help enterprises to solve the financing problems. This original intention has an impact on the later system design and policy-making of the securities market.

The most important function of the capital market is wealth management, and its basic goal is to incubate new enterprises and new technologies, and promote the growth of enterprises. However, in the initial stage of designing the market from the perspective of financing, a series of problems gradually emerged. Therefore, in the past 30 years, China's capital market must be reformed greatly to return to its original source.

On the whole, there are three monuments in the 30-year history of capital market reform that must be remembered. The first monument is the establishment and operation of the Shanghai and Shenzhen exchanges, which is an epoch-making event from the perspective of China's system.

The second monument is the reform of non tradable shares in 2005. In the 15 years from 1990 to 2005, China's capital market basically did not develop very much, mainly because of the serious deviation in the positioning of the capital market, imperfect legal system, unclear policies and uncertain objectives, which led to many detours in the development process. China's economy is booming, but China's capital market has not been out of the misunderstanding, which also leads to major problems in the institutional platform of the capital market.

This system platform refers to the state of the listed company's equity division. In the state of non tradable shares, the interests of the two types of shareholders of listed companies are different, which is the most prominent performance of the system defects at that time.

After several years of exploration, the reform of non tradable shares was finally launched in 2005. The reform of non tradable shares is very complicated, which involves the maintenance of state-owned assets, the control of state-owned capital over listed companies, and the interest demands of shareholders of tradable shares. Therefore, we must find a balance between them.

The reform of non tradable shares is a major turning point for China's capital market. Before that, China's capital market system platform had major defects and the system was not standardized. After that, from the perspective of the basic institutional framework, the domestic capital market began to enter the period of institutional norms.

By 2019, China's capital market will implement the registration system reform, which is the third monument. Before the reform of the registration system, China's capital market is gradually moving towards institutional norms. However, the degree of marketization is not enough, and the power of administrative allocation of resources is too strong. Therefore, we must return to allowing the market to allocate financial resources, let the market choose listed companies, and let the market price. This is the registration system reform.

From 2019 to 2020, the two exchanges will carry out the pilot reform of registration system in the science and technology innovation board and the growth enterprise market, which marks that China's capital market has entered a market-oriented era.

This reform is of great significance, which means that the theoretical understanding of the market, policy design and institutional platform have returned to the origin of the capital market. In the past, policies, rules and regulations deviated from the origin of the capital market, so the capital market could not develop for a long time.

Registration system is the leader of reform

21st century: do you think it is the right time to reform the registration system?

Wu Xiaoqiu: in 2013, the registration system was first proposed at the Third Plenary Session of the 18th CPC Central Committee. But at that time, the conditions for reform were not fully met. The investors' understanding of the registration system, the understanding of the macro departments' understanding of the registration system, and the bearing capacity of the capital market, etc. still need to be further consolidated and straightened out, and further exploration is needed, especially the reform should be linked with what enterprises should be listed on the stock market.

The reform of registration system must make high-tech enterprises become the main body of listed companies, and let high-tech enterprises become the main part of the increment of Listed Companies in the future. These two points should be combined together.

If the registration system is combined with the listing of traditional enterprises, the value of the registration system reform will be greatly damaged, because the core of the registration system is marketization, including market-oriented selection of listed companies and marketization of pricing. If the listed companies choose non market behavior, it will seriously damage the significance of the registration system reform.

In 2019 and 2020, it can be said that the conditions for reform are fully or basically met. With the maturity of the capital market and the revision of the securities law, people's theoretical understanding of the capital market has been further deepened, and the environment for the implementation of the registration system has begun.

21st century: in the history of domestic capital market, there have been many times of IPO issuance system reform, but it has always been unable to walk out of the strange circle of "random release" and "three high problems". What do you think is the crux of this? Is the registration system a panacea to solve the problem?

Wu Xiaoqiu: in the past, we have made some attempts and reforms in the IPO issuance system, but they are not fundamental and only stay at pricing.

In fact, the most important issue of IPO is the issuance system, not the issue pricing. The pricing must be through the market-oriented pricing, rather than the price earnings ratio. Because different listed companies have different industry attributes, different management teams, different development histories and different visions, their pricing standards will naturally vary greatly. The pricing should be handed to the market and investors, who can make judgments.

The IPO system reform in the past 10 years is partial and technical, which does not touch the root, has little significance and has no obvious effect. The core basis of the reform of capital market system is the marketization reform of the issuance system. In the past, after individual stocks were listed, there were 5, 10 or even 20 limit boards on the basis of the issue price. This phenomenon is abnormal, which shows that there are major problems in the issuance system of the capital market.

Therefore, after market-oriented pricing, there will be a certain probability that the transaction price will be lower than the issue price, which is a normal phenomenon. The issue price may only be a central axis, and the trading price can fluctuate up and down.

21st century: what supporting infrastructure do you think is needed in the next stage of registration reform?

Wu Xiaoqiu: the registration system is the leader of the reform. It will be implemented in the whole market in the future, and there are a series of systems to be reformed and adjusted.

First of all, the focus of information disclosure should be adjusted, and so should the formatting of information disclosure.

Secondly, merger and reorganization. We should attach importance to the value of promoting the development of capital market by M & A, and understand the special status of M & A in China's capital market. In the past, we didn't pay much attention to the merger and reorganization of stock resources, and often labeled them as insider trading. In fact, effective M & A is an important foundation for the healthy development of capital market, so we should pay attention to and adjust some rules of M & A. In the past, we have set up various barriers to M & A. the threshold is very high, which is actually not conducive to the development of the market.

In addition, there is the reform of the regulatory system. The relationship between the CSRC and the stock exchange, as well as the nature of the exchange itself, should be adjusted and improved around the reform of the registration system.

Of course, the more important is the delisting mechanism. If the registration system is implemented in the whole market, the delisting mechanism should be improved quickly and play a role. Because the delisting speed of China's capital market is indeed very slow, and listed companies are always kept in the capital market by various means. This will destroy the pricing function of the market, and the efficiency of market wealth management will also be seriously damaged. Therefore, after the registration system reform, a series of systems including delisting mechanism should be further improved.

21st century: how do you think the delisting standard of capital market should be set in the future?

Wu Xiaoqiu: it depends on the delisting mode of China's capital market, whether the par value is important, whether the profit is important, whether the market pricing is important, whether the transaction volume is important, or whether the future growth is important.

The delisting system depends on the value orientation of the market, what kind of value orientation the system design shows, and what kind of market we want to build China's capital market into, then we can determine the standards and systems of delisting.

In my opinion, trading volume should be a measure of delisting. The second is major violations, such as fraud listing, which is bound to delist. As for whether the loss will be delisted, it needs to be discussed. Because, under the registration system, loss making enterprises can also be listed, which is different from the traditional listing standards.

In fact, the company has lost money, but the transaction volume is very large, and investors may think that although the company is in a loss state at present, it may have a great development prospect in the future.

As for delisting below par value, I personally don't think this standard is entirely appropriate because discount trading is also a normal transaction. Therefore, as for delisting, it is still necessary to study some theoretical issues clearly. If the delisting logic is reasonable below par value, is there any problem with those transactions whose share prices are lower than net assets per share? There must be something wrong with this conclusion.

"21st century": after the implementation of the new securities law, the punishment for illegal acts in the capital market has been significantly increased, but the outside world still has doubts about "three cups of fine wine". What's your opinion and suggestion on this?

Wu Xiaoqiu: first of all, the securities law has greatly improved the administrative and economic punishment standards for illegal acts such as false information disclosure and fraudulent listing. However, the current criminal law has not yet been amended to improve the criminal law.

In fact, if we can further improve the criminal punishment of illegal acts in the capital market, and at the same time speed up the construction of the legal system including the company law, securities law and civil procedure law, we can better restrain the illegal acts in the capital market and play a great deterrent role. Only the economic punishment and administrative punishment mentioned in the securities law is not enough. We must improve the system in criminal punishment and class action. From the above four ways together to curb capital market violations.

Goals for the next 30 years

21st century: standing at the threshold of 30 years, what do you think is the goal of the domestic capital market in the next 30 years?

Wu Xiaoqiu: China's capital market has left three monuments in the past 30 years. These three monuments are the records of China's capital market exploration and reform practice in the past 30 years. The reason why we have to go through these dangers and overcome so many difficulties is that we have to pursue a goal, which is to build China's capital market into an international financial center.

Ten years ago, I was optimistic that China's capital market must be open and international in 2020, and it will be an important international financial center in the world. However, it can not be achieved on schedule, but this does not mean that this goal can not be achieved.

According to the long-term development plan of 2035 set by the Fifth Plenary Session of the 19th CPC Central Committee, China will become a moderately developed country. By then, I think China's capital market will certainly become an open, international and international market with the nature of an international financial center. I think that goal is still what we are pursuing.

In order to achieve this strategic goal, the capital market needs to be reformed a lot. The registration system reform has laid the foundation. However, to become an international financial center, we should not only let foreign investors invest in China's capital market, but also allow foreign enterprises to list in China and open to the outside world in both directions. According to China's laws, to invest in China and to list in China is the international financial center.

Of course, there needs to be a proportion. China is a country dominated by endogenous power. Under such a structure, the proportion of foreign investment in the Chinese market will certainly not be as high as that in London and Tokyo, which are 40% and 60% respectively, and that of the US market is 15%. In the future, China's capital market, whether in terms of the structure of investors or the proportion of listed companies of Chinese and foreign enterprises, I personally think that it will be close to the US market. At present, the proportion of foreign investors in China's market is 3.5%. How high the proportion will be in the future depends on other conditions, including the basis of the rule of law, transparency, the spirit of contract, economic sustainability, and the ability to manage the capital market.

"21st century": in the process of establishing an international financial center, what else needs to be reformed and improved in the domestic capital market?

Wu Xiaoqiu: I think there are four points:

First, we should have a good foundation for the rule of law and a concept of rule of law that is deeply rooted in the hearts of the people. The rule of law and the rule of law are the basis of the rule of law. When we have a good tradition and foundation of the rule of law, the long-term expectation of the market will be formed, which is the most profound foundation for the capital market to become an international financial center.

Second, the spirit of contract. To allow others to invest or other enterprises to come to the market, there must be clear agreements. First of all, these agreements require the market entities to be equal. Secondly, they must be strictly observed. If they do not comply with these agreements, they will change at any time, and the changes are unreasonable. It is difficult to become an international financial center. The spirit of contract is very important. There are still many deficiencies in China's capital market in this respect. It is arbitrary and subjective and needs further improvement.

Third, transparency. The lifeline of capital market is transparency. As a disintermediated financial format, capital market can develop because of transparency, that is, full information disclosure. How the price is determined and what kind of portfolio investors make are closely related to whether the information disclosure is transparent or not. If the information is not transparent, the market will become a gambling house. At present, regulators have realized the importance of transparency, and even the important or primary responsibility of the CSRC is to maintain the transparency of the market.

Fourth, establish the long-term credit of RMB. In the coordination of macro-economic policies, we should realize the importance of long-term credit of RMB. The long-term credit of RMB is an important guarantee for the construction of international financial center. If the credit of RMB is not good, such as the so-called policy trend of issuing a large number of currencies to stimulate short-term economic growth, it is certainly not conducive to the construction of an international financial center. In addition to the national credit market, it is very difficult to establish a national credit market.

Exploring the listing of growing enterprises to enhance the function of wealth management in the market

21st century: how do you think to improve the wealth management function of China's capital market?

Wu Xiaoqiu: without the function of wealth management, the market will lose its value of existence, and the key to realize the function of wealth management is what kind of enterprises should be listed. The basic assets of wealth management are the stocks issued by listed companies and the securitized assets issued by them. If the company's assets do not grow and have no value, there is no wealth management.

In the past, we all listed very important enterprises in the traditional industrial era. Of course, there were reasons in that era, and we could not be demanding. However, today, we will see that some enterprises do not have any growth potential. It is meaningless to let these enterprises go public, which will seriously damage the function of wealth management of the market. Investors are not interested in investing, the market can not be developed, let alone the construction of international financial center. Therefore, we must let those valuable enterprises go public, that is, the investors think that these companies have good growth in the future. This requires breaking through many traditional concepts. In the past, we paid attention to the composition, the importance of the enterprise, and the glorious history of the enterprise. In fact, it has nothing to do with wealth management. Wealth management only focuses on whether the enterprise can grow in the future, which is very important.

Under the registration system, enterprises can be listed as long as the information disclosure is compliant. However, the relatively poor growth of the enterprise, its listing price is likely to be lower than its net assets per share, the listed shares of the enterprise is not cost-effective, the original shareholders of the company will have a significant loss of profits. Under the condition of marketization, people's behavior tends to be rational. But the growth type enterprise, its net assets may be only 1 yuan or 2 yuan per share, but it can be set to 20 yuan, the profit may be very small, or even loss, but it can do a good price.

 

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