Modern Capital Markets Enabling High-Quality Economic Development

As China's economy moves into the stage of high-quality development, new and greater demands are being made of our financial system, including those to provide efficient financial support to strategic emerging industries as well as micro, small, and medium-sized enterprises, to promote risk diversification across time, industries, and groups of people, and to cater to people's growing wealth management needs. Capital markets play a unique and indispensable role in allocating resources, mitigating risks, transmitting policies, and managing expectations. They are the key to furthering supply-side structural reform of the financial sector and can be utilized further to help achieve China's objective of high-quality development.

We must stimulate vitality for innovation of market entities to consolidate micro-foundations for high-quality economic development. Innovation is the primary driving force of high-quality development, and cultivating a group of innovative enterprises with core competitiveness is a requisite micro-foundation for high-quality economic development. The risk and benefit sharing mechanisms of capital markets not only provide access to financing but also play a significant role in improving corporate governance and stimulating entrepreneurship. Surveying the history of economic and financial development, we can see that technological innovation, protection of property rights, market expansion, and financial support are all key forces driving continuous "creative destruction," and the positive role of capital markets in this is increasingly prominent. The development of stock exchanges has further facilitated the circulation of company shares, made financing and pricing more efficient, and facilitated the implementation of innovations such as equity incentives. Without the ongoing development of capital markets, such rapid corporate innovation and technological progress would have been impossible.

We must encourage positive interplay between industry and finance to ensure unimpeded economic flows. Economic activity is a dynamic cyclical process; the key is to achieve a virtuous cycle of savings and investment. In the past, China's savings have predominantly been converted into investments in the form of credit, mostly through indirect financing. As China's industrialization and urbanization reached a certain level, both overcapacity in traditional industries and under-investment in emerging industries were apparent, manifesting as a decline in returns on corporate investment at the microscale and depressed demand for effective investment at the macroscale. In recent years, China has maintained sufficient liquidity, market interest rates have largely declined, and growth in aggregate financing has kept pace with nominal GDP growth. On the whole, China does not lack funds; it lacks capital. In particular, it lacks innovation-oriented capital, and this structural issue is exacerbated by increasing downward pressure on investment growth in traditional industries. Through capital markets, savings can be channeled toward innovative industries by means of decentralized decision-making and risk acceptance. At this important juncture in our economic restructuring, to ensure that inputs produce higher-quality outputs with greater efficiency and that an optimal dynamic equilibrium is achieved in our economy, it is essential that we leverage the role of capital markets, coordinate the development of direct and indirect financing, and guide more savings toward emerging industries while also encouraging the transformation and upgrading of traditional industries.

We must improve macroeconomic governance and ensure smooth economic operations. In this phase of slowing economic growth, we also face considerable financial risks, so maintaining macroeconomic stability is essential for a successful shift to high-quality development. Some economies have shown that being highly leveraged creates systemic risks, and once economic growth slows, financial risks, and particularly debt risks, are rapidly exposed, the economy will undergo a challenging process of passive deleveraging. China's macro leverage ratio is relatively high currently. By expanding equity financing and diversifying risk management tools through capital markets, we can alleviate risks associated with high leverage ratios and refine the transmission of monetary policy, which has a significant bearing on improving the stability of our economic operations in the near term. 

We must ensure that the people share more of the fruits of economic development. To achieve high-quality development, we must adhere to our people-centered development philosophy. Capital markets are important tools for people to increase property income and meet their growing demand for wealth management. They also offer important support for improving the old-age insurance system with its multiple tiers and pillars. In recent years, the China Securities Regulatory Commission (CSRC) has striven to continue investment-side reform, bolster various medium and long-term investment approaches, promote the introduction of policies on the investment of personal pensions in public funds, vigorously advocate professional investment, value investment, and long-term investment, and encourage listed companies to increase investors' returns through cash dividends and share buybacks. Furthermore, we have continued to optimize the capital market environment, enforced a zero-tolerance approach to securities violations, and introduced the litigation system of representative actions for securities disputes, in order to better protect the legitimate rights and interests of investors, especially small and medium investors. Between 2017 and 2021, the cash dividends of listed companies in China exceeded 6 trillion yuan, the annualized returns of equity-oriented funds were 11.7%, and public funds entrusted to manage various types of pensions were worth 4 trillion yuan, all of which represent good returns. The next step in reform of the capital markets is to further strengthen the ability of listed companies to create value, boost the professional capabilities of institutions within the industry, and achieve positive mutual promotion between development of the real economy, improvement of the quality of listed companies, and growth of investors' returns.