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Comments: Optimize The Structure Of Listed Companies To Ensure The Realization Of The Dynamic Balance Of "In And Out"

2020/8/1 12:21:00 0

Review Optimize The Structure Of Listed Companies To Ensure The Realization Of The Dynamic Balance Of "In And Out"

Feng Xuming (deputy director of research department, Institute of financial strategy, Chinese Academy of Social Sciences, researcher of China and world economic research center, Tsinghua University)

After the reform and opening up, China has maintained a sustained and stable high-speed economic growth. Although the growth rate has slowed down in recent years, it is still in the stage of medium and high-speed growth. However, for a long time, the stock price trend of the A-share market has been maintained in the range of 2000-3500 points except for a few times, and the volatility is large.

Why this contrast? In addition to market structure, investor culture and other factors, a common explanation is that "China lacks good enterprises". This paper argues that this explanation does not hold water - it is not that there are no good enterprises in China, but some good enterprises are not selected.

There is systematic deviation between the structure of listed companies and economic structure

China's economy has developed a large number of good enterprises in the past 40 years.

According to the ranking of Fortune magazine, among the world's top 500 enterprises in 2019, the number of Chinese enterprises has accounted for 129 (including 10 enterprises in Taiwan), surpassing 121 in the United States and becoming the largest source country.

According to the "report on the development trend and prosperity index of China's Internet industry (2019)" released by the China Institute of information and communications, by the end of 2018, China accounted for 10 of the top 30 Internet listed companies with global market value, second only to 17 in the United States. Japan, South Korea and Brazil each have one.

According to the Research Report on science and innovation unicorn in 2019, as of June 2019, there are 452 Unicorn companies in the world, of which 180 are from China, which is equivalent to 179 in the United States. China has become one of the most active markets for science and technology innovation enterprises in the world.

These facts all illustrate an undoubted conclusion that there are good enterprises in China. In the past, a lot of good enterprises have been produced and are still breeding. It can be said that thousands of new enterprises have been bred, developed and matured. They are not only the fruits of China's economic development, but also the driving force for the continuous development of China's economy.

An important basic reason for the contrast between stock market and economic performance is that there is a certain systematic deviation between the distribution structure of A-share listed companies and the transformation and upgrading of China's economic structure. The evolution of the structure of listed companies can not keep up with the transformation and upgrading of China's economic and industrial structure, which makes it difficult for the performance of the stock market to reflect the latest achievements and future expectations of China's economic transformation and upgrading.

The deviation between the distribution structure of A-share listed companies and the transformation and upgrading of China's economic structure is mainly reflected in the high proportion of traditional industries in the stock of listed companies, while the proportion of new economy is insufficient. A typical example is the financial sector, which, by the end of 2019, accounted for 27.1% of the total market value of A-share listed companies and 23.4% of the A-share circulating market value, while the financial sector accounted for 7.8% of GDP in 2019. The mining industry also presents a similar situation - by the end of 2019, the mining industry accounted for 5.1% and 5.7% of the total market value and circulating market value of a shares respectively, while its share in GDP was only about 2.5%. In contrast, the share of "services other than finance" in China's economy has continued to rise in recent years, and its share in GDP has risen to 46.1% in 2019. However, its share in the total market value and circulating market value of a shares is only 18.5% and 18.9%.

It should be noted that there are differences in the production organization mode, industry competition structure and asset liability structure of various industries, so it is normal that the market value and GDP share of listed companies are not completely corresponding. However, if the gap is too large, it will objectively lead to the phenomenon that the trend of stock index is not synchronized with the macroeconomic performance.

The most prominent deviation performance is the Internet industry

The most prominent deviation between the stock market and the Internet is the industry performance. In the past two decades, the commercialization of Internet technology has benefited from the large number of Internet users and the endogenous driving force of the leap forward development of business system. A large number of high-quality Internet enterprises have been born in China. Among them, there are not only traditional Internet enterprises such as Alibaba, Tencent, Baidu, Jingdong, Sina, Sohu, Netease, but also emerging mobile Internet enterprises such as today's headlines, Didi, meituan, pinduoduo and Kuaishou.

These head Internet companies were founded in China, and most of their users are Chinese. Their main business and profits come from the mainland of China, but they are not listed in the A-share market. Tencent, for example, is listed in Hong Kong, China, and Alibaba is listed in the United States and Hong Kong, China. Www.chinacom.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.com.cn.cn.com.cn.com.cn.com.cn.cn.com.cn.cn A large number of well-known Chinese Internet companies have chosen to list on the New York Stock Exchange or NASDAQ Stock Exchange. This list can be very long. According to statistics, there are 379 Chinese enterprises listed overseas (excluding Hong Kong), with a total market value of 13.5 trillion yuan. In other words, one fifth of the total market value of a shares is already listed in China. Among them, 252 are listed in the United States, accounting for more than 90% of the total market value of China capital stocks outside Hong Kong.

The equity of these high-quality Internet companies is one of the best assets bred in China's economic development over the years. Take Tencent as an example. When listed in Hong Kong on June 16, 2004, the offering price was HK $3.7, with a total market value of HK $6.2 billion; by July 2020, Tencent's share price had reached HK $520, with a total market value of HK $5010.9 billion. Even without considering the dividend income, the stock price has increased 139 times and the market value has increased 807 times in 16 years. Unfortunately, except for a small number of high net worth investors who can directly or indirectly participate in the market investment other than these a shares, the vast majority of ordinary mainland shareholders are difficult to make profits through direct investment in the stocks of these companies. This phenomenon of "fertilizer flowing into the field of outsiders" is a pity for ordinary mainland investors. On the other hand, it also caused a large number of Chinese Internet enterprise stock investors and operators, users in the geographical and cultural "isolation", objectively caused a number of friction and inconvenience.

Before 2008, one of the reasons why Chinese Internet companies chose to list overseas was that the overseas capital market was more "thick" and the capital supply was more abundant, stable and diversified. However, this has changed significantly after the global financial crisis in 2008. The scale of stock wealth in China's economy has grown significantly. On the whole, savings are greater than investment, and the supply of investable funds exceeds the effective financing demand, which has become the norm. Moreover, with the development and maturity of various types of institutional investors, the thickness and stability of the capital market are increasing. It can be said that if only considering the financing capacity, the gap between A-share market, Hong Kong stock market and US stock market has been greatly narrowed.

On the one hand, the short board of A-share is reflected in the investor structure and capital diversification. Compared with Hong Kong, China, the United States and other more open and international markets, there are still deficiencies. In recent years, with the liberalization of QFII quota, Shanghai Hong Kong stock connect and Shenzhen Hong Kong stock connect, this has improved, but there is still a long way to go. On the other hand, system construction is the more critical short board to restrict the healthy development of A-share, which is mainly reflected in the urgent need to form a fully market-oriented listing system and delisting system. Listing and delisting system is the most basic mechanism design of any stock exchange market, and is the premise of the healthy operation of the market.

The reform of listing system and delisting system helps to correct the deviation

In the process of listing, the earliest implementation of A-share is the examination and approval system, which follows the "quota management" or "index management". The securities law, which was implemented in July 1999, put forward the approval system, but it still has some administrative intervention. Under the approval system, a company must meet some rigid requirements to be listed, such as operating revenue and profit above a certain amount. These requirements are mostly the product of industrial economic thinking, which can be said to be customized for industries born in the era of industrial economy such as finance, manufacturing and real estate, but it is difficult to adapt to the needs of the Internet new economy era. Therefore, for a long time, Internet companies can not meet the hard requirements and it is difficult to be listed in a shares.

In recent years, after continuous learning and exploration, the stock exchange and securities regulatory authorities in mainland China have fully realized the drawbacks of the structure of listed companies lagging behind the transformation and upgrading of economic structure, and began to accelerate the reform and optimize the relevant system construction. In 2013, the Third Plenary Session of the 18th Central Committee of the Communist Party of China clearly put forward the reform direction of the stock issuance registration system. By the fifth year of the Securities Act, the legal status of the securities law will be established. The science and Technology Innovation Board will be launched gradually in January 2019.

In 2015, we began to study the possibility of IPO and its impact on China Securities Regulatory Commission (CSRC). In the opinions of China Securities Regulatory Commission on carrying out pilot projects of domestic issuance of stocks or depository receipts by innovative enterprises issued in March 2018, large-scale overseas listed red chip enterprises are allowed to directly issue shares or depository receipts for listing in A-shares if they meet relevant conditions. In April 2020, the announcement on relevant arrangements for the domestic listing of innovative pilot red chip enterprises further lowered the threshold for overseas listed red chip enterprises to return to A-share listing, and conditionally accepted the vie structure.

Since 2018, the regulatory requirements of the US securities regulatory authorities on Chinese companies listed in the United States have become more stringent. In May 2020, the U.S. Senate passed the "China Company Supervision Act", which requires strict financial review and Independence Review on the general shares listed in the United States, and sets many harsh conditions. On the whole, economic and trade frictions and potential "decoupling" challenges have become a dark cloud floating over China capital stocks listed in the United States, leading to the price fluctuation of China capital stocks and the suppression of valuation. Some listed companies and investors have even made it clear that China concept shares have been discriminated against and treated unfairly in the US capital market.

Driven by the reform of listing systems in the mainland and Hong Kong, coupled with the external environment of trade frictions, a number of Internet companies that were originally listed in the United States began to return to seek secondary listing in A-share or Hong Kong stock markets. In February 2016, the company was listed on the Qihu stock exchange in July 2016. In November 2019, Alibaba was listed on the Hong Kong stock exchange, the largest IPO of the Hong Kong Stock Exchange in nine years. In June 2020, Netease and Jingdong will be listed on the Hong Kong stock exchange. In addition, according to media reports, Baidu, yum! China, tal future and other well-known listed companies in the United States are also planning to go to Hong Kong for secondary listing. Some of them have already made public the timetable and started to formally promote the listing process.

In addition to the return of overseas listed Internet companies, in recent years, more and more high-tech enterprises have taken the initiative to take A-share as the preferred IPO market. The establishment of the science and technology innovation board further strengthens this feature. Generally speaking, the reform and improvement of the listing system has improved the ability of China's financial system to transform excellent enterprises into high-quality financial assets, making the deviation between the structure of listed companies and the transformation and upgrading of economic structure in correction.

Compared with the listing link, the institutional weakness of A-share market in the delisting link is even weaker. Even if there are many kinds of problems, some enterprises will be withdrawn from the market. According to wind statistics, by the end of 2019, only 110 A-share companies have delisted in the past 30 years, with an average of less than 4 companies per year. The average number of companies withdrawing from NYSE is about 500 a year.

Enterprises have a life cycle. The development process of modern economy is accompanied by the continuous germination and growth of new enterprises, as well as the aging and liquidation of some existing enterprises. With the continuous development of new and old enterprises, capital, labor and other essential resources are continuously optimized and reallocated, thus ensuring the vitality of the economy. The same is true of the stock market. Only when there is entry and exit, can we play the function of resource allocation on the one hand and maintain the vitality of the stock market on the other. On the contrary, the stock market with entry and no exit will not only be difficult to give full play to the function of resource allocation, but also objectively lead to the aging of the structure of listed companies, lagging behind the pace of economic restructuring, thus making the stock market itself lack of vitality.

In the future, while continuing to improve the registration system and other listing links, we should speed up to make up for the institutional weaknesses in the delisting link of the A-share market, so as to ensure that the listed companies that are no longer suitable for listing and trading can exit the market in a timely manner, and achieve a dynamic balance. In a broader sense, we should also improve the operability of the bankruptcy law and avoid "zombie enterprises" from occupying and consuming various elements. Only in this way can China's overall economic growth momentum and the vitality of the stock market be maintained for a long time.

 

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