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Profound Structural Changes in the New Era

By Qiu Ping Source: Updated: 2023-07-11

Since the 18th National Congress of the Communist Party of China (CPC) in 2012, China has adhered to supply-side structural reform of the financial sector and kept taking the concepts and methods of reform to overcome institutional obstacles in capital markets. It has promoted deeper reform and greater structural changes in capital markets to help achieve both quantitative and qualitative improvements in economic development.

Equity and debt financing have grown steadily. Between 2017 and 2021, initial public offerings (IPOs) and refinancing raised 5.2 trillion yuan, and exchange bond markets issued 33.9 trillion yuan worth of bonds. In 2021 alone, IPOs and refinancing raised 1.5 trillion yuan, and financing from the stock and bond markets exceeded 10 trillion yuan, both of which were record highs.

The market structure has improved visibly. By the end of June 2022, there were more than 2,200 A-share listed companies in strategic emerging industries, and the market value of new-generation information technology, biomedicine, and other high-tech industries had increased from around 20% of total market value in early 2017 to around 37%. With the R&D investment of listed companies accounting for more than half of Chinese enterprises' R&D spending, the role of listed companies as the foundation of the real economy and pioneers of transformation and development has become more profound. The composition of investors has also improved, with the proportion of circulated market value of Chinese institutional investors and foreign investors rising from 15.8% in early 2017 to 23.5%.

The multi-layer market system has undergone constant improvements. Successful pilots of registration-based IPO system for the STAR and ChiNext have made capital markets more appealing to high-quality enterprises. The deeper reform of the New Third Board (also known as the National Equities Exchange and Quotations) with the establishment of the Beijing Stock Exchange is a key step in expanding the capital market for innovative SMEs. The Futures and Derivatives Law of the People's Republic of China has been adopted, which has effectively filled a major gap in our legal system pertaining to these financial instruments. At the end of June 2022, there were 94 futures options covering the principal areas of the national economy and people's livelihood. Given the sharp rise in international commodity prices since 2021, the prices and price increases of major futures, such as thermal coal and iron ore, in China were below those of the spot and overseas markets, which has contributed positively to ensuring supply and stabilizing prices. 

Progress has been made in optimizing the resource allocation. The adaptability and inclusiveness of capital markets has significantly improved, and market-based incentive and restraint mechanisms have continuously improved. The role of capital markets as the main conduit for mergers and acquisitions (M&A) has been strengthened, with the value of M&A transactions in the past five years rising to around 10 trillion yuan, which has helped to vitalize market entities. The delisting system has been refined, with 42 companies forced to delist so far this year. A market environment featuring orderly listing and delisting and in which the fittest survive is taking shape at pace.

A high level of openness at the institutional level is steadily being achieved. We are balancing opening up with security concerns as we promote greater openness in all aspects of markets, products, and institutions. Restrictions on proportions of foreign ownership of securities, funds, and futures companies have been fully lifted. Connectivity is continuously increasing with the optimization of the Stock Connect system between the Shanghai, Shenzhen, and Hong Kong bourses and their agreement to include ETFs as tradable securities, as well as the expansion of the Shanghai-London Stock Connect scheme to include Shenzhen-listed companies and capital markets in Germany and Switzerland. China A-shares are listed on internationally renowned indices, and their share of those indices continues to increase. A-share index futures are also now traded in Hong Kong. China has seen net inflows of foreign capital for many consecutive years, significantly enhancing the international appeal and competitiveness of China's capital markets.