How To Construct High Standard Capital Market

The high standard market system construction plan is very important.

On January 31, the general office of the CPC Central Committee and the general office of the State Council (hereinafter referred to as the "two offices") issued the action plan for building a high standard market system (hereinafter referred to as the action plan). According to the action plan, China will basically build a high standard market system with unified opening, orderly competition, complete system and perfect governance through five years' efforts.

In view of the decisive role of the market in the allocation of resources, the action plan also makes a detailed plan on how to promote the healthy development of the capital market, including promoting the reform of the registration system, establishing a normalized delisting mechanism, cultivating institutional investors, and reducing the financing cost of the real economy.

Managing the "two gates" of capital market

As the "entrance" and "export" of the domestic capital market, the registration system and delisting mechanism are still placed in the head position of the healthy development of the market.

According to the action plan, the reform of the registration system for stock issuance will be steadily promoted, with special requirements for sticking to the orientation of the science and technology innovation board, highlighting the characteristics of "hard science and technology", evaluating and improving the pilot arrangement of the registration system, and deepening the reform of the stock issuance registration system with information disclosure as the core.

Similar to highlighting the characteristics of "hard science and technology", China Securities Regulatory Commission (CSRC) also said at the 2021 system work meeting held recently that it would "improve the evaluation criteria of scientific and technological innovation attributes".

As early as March 2020, the China Securities Regulatory Commission (CSRC) issued the guidelines on the evaluation of science and technology innovation attributes (for Trial Implementation). Some senior investment bankers of securities companies said that, combined with the recent regulatory statements, the identification of the scientific and technological innovation attribute in the future enterprise IPO may be more strict, and the supervision is also focusing on finding and filling up the deficiencies, and establishing a more perfect evaluation system.

Tian Lihui, Dean of the Financial Development Research Institute of Nankai University, pointed out that the registration system provides the convenience for enterprises to issue shares. However, the science and technology innovation board is not all enterprises, but serves the scientific and technological innovation enterprises which conform to the national strategy, break through the key core technologies and have high market recognition. It is proposed that "sticking to the orientation of the scientific and technological innovation board and highlighting the characteristics of" hard science and technology "is to return to the original intention and require the scientific and technological innovation board to serve the scientific and technological innovation enterprises with core technology, rather than the financial and other service enterprises under the banner of scientific and technological innovation.

"Hard science and technology" mainly refers to the improvement of manufacturing productivity, and innovation based on scientific discovery and technological invention. The same is innovation. For example, some Internet companies are positioned as model innovation. Therefore, the positioning of hard technology actually excludes some equally excellent enterprises. This has nothing to do with right or wrong, but it just shows that under the great idea of preventing "black swan", the supervision has implemented the guiding control of IPO marketization, so that the capital market can help optimize the economic structure. " Pan Helin, executive director of the Digital Economy Research Institute of Central South University of Finance and law, said.

On how to steadily promote the reform of the registration system of stock issuance, Tian Lihui believes that we should focus on how to realize the high-quality development of the registered listed companies, how to improve the fair pricing ability of the science and technology innovation board and the gem, and how to form the value investment culture of the capital market. "The full implementation of the registration system requires effective market, fair pricing and correct investment philosophy of investors.".

On the reform of delisting system complementary to registration system, the action plan also proposes to establish a normalized delisting mechanism, further improve delisting standards, simplify delisting procedures, and smooth diversified exit channels. It is worth mentioning that at the end of 2020, the Shanghai and Shenzhen stock exchanges officially issued new delisting rules, simplifying the delisting process and strictly enforcing the delisting standards.

In this regard, Tian Lihui believes that it is mainly out of the consideration of constantly summing up the delisting practice experience and constantly optimizing the delisting rules. "At present, the new delisting rules are not hard hit, and it is unlikely to be revised again in a short period of time. In the specific operation, it is necessary to strictly implement the delisting standard, prevent the pattern from evading the delisting standard, and resolutely delist those touching the delisting standard.

Li Zhan, chief economist of Zhongshan securities, further pointed out that to improve the delisting system, we should strengthen the weight of stock price, number of shareholders, market value and other factors in the delisting system, enrich the role of market indicators in delisting, and balance the proportion of market and administrative delisting regulations. At the same time, for investors, compulsory delisting, board delisting and M & A delisting all mean loss of interests. It is suggested that the investor protection mechanism should be strengthened to protect the legitimate interests of investors while perfecting the delisting system.

Share development dividend in the whole market

While managing the "two gates" of the capital market, the action plan also makes a detailed plan for all participants in the capital market.

Among them, the action plan proposes to cultivate institutional investors in the capital market. Specifically, it includes: steadily promoting the establishment of bank financial management subsidiaries and insurance asset management companies, encouraging banks and bank financing subsidiaries to cooperate with qualified securities fund operators, venture capital funds and government funded industrial investment funds in accordance with laws and regulations, and studying and improving insurance institutions' investment in private financing products, private equity funds, venture capital funds and government funded industries Investment funds and related policies of debt to equity swap. We will increase the proportion of equity investment in long-term funds such as pensions and insurance funds, and carry out long-term assessment.

"The further growth of China's capital market needs more professional investors. Professionalism means that different investors serve enterprises at different stages of development. Therefore, the two documents actively promote the diversification of institutional investors. " However, Tian Lihui also pointed out that "professional investment is not speculation, and it needs long-term investment under the premise of reasonable valuation."

Chen Li, chief economist of Sichuan financial securities, said that the "two offices" proposed "cultivating institutional investors in the capital market" to guide long-term funds into the market. On the one hand, long-term funds usually pay more attention to value investment. Guiding long-term funds into the market is conducive to guiding the correct concept of value investment and to the prosperity and stability of the market. Second, the long-term capital into the market helps to improve the market liquidity, enhance the financing ability of enterprises, and promote the listed companies to become bigger and stronger.

While taking into account the primary and secondary markets, the action plan is also focusing on reducing the financing costs of real enterprises.

Tian Lihui said that the rapid development of the real economy needs to reduce the financing cost of enterprises. The reform of interest rate marketization in China needs to be further deepened. The action plan proposes to improve the formation and transmission mechanism of market-oriented interest rate, and then adjust the economic activity through the change of market interest rate. Whether the loan market quotation rate (LPR) can continue to decline has a significant impact on cost reduction. The targeted reduction of the reserve requirement, refinancing, rediscount, Inclusive Finance and "credit easy loan" are structural cost reduction means, which can help to solve the problem of financing difficulty and high financing of small and medium-sized enterprises, improve employment and realize "six stability" and "six guarantees".

"Whether the combination of interest rates can solve the problem of financing difficulty and high financing cost of small and medium-sized enterprises and reduce the financing cost of the real economy, in essence, we need to speed up the structural reform and opening up to the outside world, release economic vitality, and realize the stabilization and improvement of economic fundamentals." Li Zhan pointed out.

It is worth mentioning that the "action plan" also makes it clear that the investor protection system will be improved, an investor suitability system matching the market segment and product risk characteristics will be established, and cash dividends of listed companies will be encouraged and standardized.

Li Zhan believes that an effective capital market can improve the investment income of investors, and the increase of investors' wealth will have a positive impact on the marginal propensity of household consumption and enterprise sector investment, which is embodied in the "wealth effect" in the sense of macroeconomics.

"From the content of the action plan, both retail investors, institutional investors, listed companies and unlisted entities can share the reform dividend of the development of the capital market, which is also one of the purposes of building a high standard market." Some domestic medium-sized securities analysts said.