China Daily (Canada) - - DEPTH -

On Dec 9, the State Coun­cil passed a draft doc­u­ment propos­ing a reg­is­tra­tion-based stock listing sys­tem, which will likely re­place the cur­rent ap­proval-based sys­tem within two years.

An­a­lysts said the pro­posal, if rat­i­fied by the top leg­is­la­ture, would be­come one of the big­gest re­forms ever in China’s stock mar­ket. It would fur­ther lib­er­al­ize the IPO mar­ket, giv­ing more say to the mar­ket in terms of tim­ing of new­share listings and their pric­ing.

Un­der the ex­ist­ing IPO sys­tem, new­shares are sub­ject to theChina Se­cu­ri­ties Reg­u­la­tory Com­mis­sion’s ap­proval. Af­ter the re­form, the new IPO sys­tem will be based on reg­is­tra­tion, high­light­ing in­for­ma­tion dis­clo­sure. It would let the mar­ket play a big­ger role in pric­ing.

Reg­u­la­tors said the shift will be stable. Mar­ket in­sid­ers said that un­der the reg­is­tra­tion-based sys­tem, more pro­fes­sional ex­per­tise would be re­quired in val­u­a­tion process, thus push­ing up de­mand for in­sti­tu­tional in­vest­ment ser­vices. That would en­cour­age more ra­tio­nal buy-and-hold mar­ket strate­gies. In the long run, the re­form will help China’s stock mar­ket to be­come more trans­par­ent and healthy, said an­a­lysts.

On De­cem­ber 1, the In­ter­na­tional Mon­e­tary Fund an­nounced that Chi­nese cur­rency yuan ren­minbi will be in­cluded in its Spe­cial Draw­ing Rights bas­ket, with a weight­ing of 10.9 per­cent. That put the ren­minbi ahead of the yen (8.3 per­cent) and the pound ster­ling (8.1 per­cent). An­a­lysts said the stock mar­ket would ben­e­fit from this in­clu­sion as it boosts in­vestors’ con­fi­dence in­China. The yuan is an­tic­i­pated to stay strong and sup­port the eq­uity and bond mar­kets, al­though the ef­fect of in­clu­sion in the SDR bas­ket may take time to man­i­fest. The SDR in­clu­sion may also help push the A-share mar­ket into the MSCI Emerg­ingMar­kets In­dex, which will bring more liq­uid­ity into the Chi­nese eq­uity mar­ket. Cor­po­rate en­ti­ties and coun­tries with sig­nif­i­cant busi­ness with China will in­creas­ingly re­tain re­serves in the yuan as trade set­tled in the cur­rency con­tin­ues to in­crease. Au­thor­i­ties in­China are likely to re­spond by fur­ther in­creas­ing in­ter­na­tional in­vestors’ ac­cess to the do­mes­tic mar­ket.

On Au­gust 24, Chi­nese stocks plunged by more than 8.5 per­cent, the big­gest one-day per­cent­age loss since 2007. The de­cline off­set mar­ket gains madesince the be­gin­ning of 2015 with more than 1,000 shares los­ing 10 per­cent, the daily limit. From June 15 to Au­gust 26, the bench­mark Shang­hai Com­pos­ite In­dex lost some 45 per­cent. The rout wiped out some $5 tril­lion in mar­ket value.

An­a­lysts said the A-share mar­ket volatil­ity was a re­sult of many fac­tors, in­clud­ing ir­ra­tional spec­u­la­tion in the first few­months of 2015, which pushed up share prices much higher than com­pa­nies’ per­for­mance and macro eco­nomic growth would war­rant.

That weak­ened mar­ket con­fi­dence amid slug­gish eco­nomic growth, and caused il­le­gal prac­tices such as in­sider trad­ing and ma­li­cious short-sell­ing. Au­thor­i­ties in­ves­ti­gated re­lated is­sues dur­ing the en­tire sum­mer of 2015, making ef­forts to re­form the mar­ket into a more trans­par­ent and ef­fec­tive one.

Reg­u­la­tors launched a se­ries of mea­sures to boost mar­ket con­fi­dence in the long run, en­abling in­vestors to trade in a safer en­vi­ron­ment.

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