More capital market reforms urged
Measures should include stronger controls on listed firms’ major shareholders, experts say
China’s capital market needs more market-oriented reform measures to further unleash its great potential and better support the real economy, experts and market analysts said.
Looking at the increased opportunities arising in the nation’s capital market, they said the measures should include better regulating the behavior of listed companies’ major shareholders in order to strengthen the foundation of a fair market environment.
“The A-share market is actually offering more opportunities for investors from both home and abroad,”
said Yang Weiyong, an associate professor of economics at the University of International Business and Economics.
Foreign inflows into China’s A-share market have increased recently as northbound trading of stock connects between the mainland and Hong Kong bourses saw net capital worth 103.28 billion yuan ($15.21 billion) flow into A shares this year until Jan 19.
The amount marks the highest single-month net foreign inflow since the connect mechanism started in 2014, according to market tracker Wind Info.
The CSI 300 index, which covers the top 300 stocks traded in Shanghai
and Shenzhen, had risen by about 8 percent since the beginning of the year, closing at 4,181.53 points on Jan 20, the last trading session before the Spring Festival holiday, according to Wind Info.
In terms of specific reform measures, experts said administrative and legal measures to punish major shareholders’ illegal behavior related to selling their stake to take profits should be intensified, while imposing additional taxes on legitimate holding reduction could be considered.
Holding reduction refers to the behavior of big shareholders, executives or actual controllers of listed companies to reduce their holdings in the companies, which usually leads
to drops in stock prices and losses among smaller shareholders.
Dong Dengxin, director of Wuhan University of Science and Technology’s Finance and Securities Institute, said it is necessary to step up punishment of those accountable for illegal holding reduction by filing representative actions and leveraging big data to strengthen the supervision and detection of such behavior.
To maximize their gains from holding reduction, listed firms’ major shareholders sometimes resort to improper information disclosure and stock price manipulation, which are serious illegal acts that hurt smaller shareholders’ interests and should be severely punished, Dong said.
Dai Guanchun, a senior capital markets lawyer, said the tax burden facing major shareholders’ holding reduction is relatively low, and it could be reasonable to appropriately raise related taxes to encourage more responsible behavior among major shareholders and protect the rights of small investors.
Liu Junhai, director of the Business Law Center at Renmin University of China, said any potential tax mechanism regarding holding reduction should be designed in a way that provides incentives for big shareholders to maintain a steady holding in listed companies, avoids dampening their willingness to invest, and therefore helps to promote common prosperity.