China accelerates capital market reforms
BEIJING: Despite intertwined structural and cyclical problems facing the Chinese economy, policymakers have pushed ahead with capital market reforms in 2019 that analysts say will be of far-reaching significance to the country’s healthy growth in the long term.
From diversifying financing channels for needy areas to opening up wider to foreign investors, the reform moves China has taken have helped facilitate economic upgrading and defuse financial risks.
At the Central Economic Work Conference concluded earlier this month, China’s top leaders pledged to quicken reforms of the financial system and continue to improve the underlying framework of the capital market. The following are some of the key reforms in the capital market in 2019.
Star market launch
The sci-tech innovation board (STAR market), designed to focus on companies in the high-tech and strategic emerging sectors, started trading in July. It is seen as a key move to leverage capital to transform the Chinese economy into an innovative one and explore ways to make institutional improvements in the capital market.
Unlike other domestic boards, it cuts red tape for listing applications, allows more market-based pricing, prioritises information disclosure and tightens delisting rules by piloting a registrationbased IPO system, a popular practice in many developed markets.
“With the successful pilot of the registration-based system, conditions are ripe for further expanding the rules,” said Li Xunlei, chief economist of Zhongtai Securities.
LPR revamp
To better reflect market changes, China’s central bank in August revamped the LPR (loan prime rate) mechanism in its latest move to guide borrowing costs lower to support the real economy.
Under the revamped mechanism, the monthly-released rates are based on rates of the central bank’s open market operations, especially the medium-term lending facility rates. Banks are required to set rates for new loans using the new LPRs as the benchmark.
Market opening-up
To facilitate foreign investment in the interbank bond market, China scrapped investment quota limits for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) and allowed the non-transacting transfer of bonds under the same overseas entity QFII/RQFII and direct entry channels, as well as direct transfer between capital accounts.
Clear roadmap
The China Securities Regulatory Commission in September listed 12 priorities for deepening the reform of the capital market, charting a clear roadmap for the sector.