New strategy addresses steps necessary to bolster opening-up
A key goal of China’s reform and opening-up effort is to build a modern, market-oriented economic system. Now that the country is moving into a high-quality growth stage, building a high-standard market system is essential for long-term growth, which is why the action plan for such a market system is a timely one.
A high-standard market system, as the name suggests, will not come easily. It cannot simply be achieved by government decree alone. It will require sophisticated reform in a number of areas, including improving institutional infrastructure, building a market-oriented production factor market and deepening reform and opening-up along with a sound legal framework.
These requirements are vital for
China’s marketorientated reform, and the new action plan has attempted to address them all. It has, in particular, prioritized building a highquality capital market to play a key role in resource allocation.
Several policy stances regarding capital market growth are worth noting.
Further reform of the registration-based initial public offerings system and normalizing delistings will allow the market to play a bigger role in stock issuing and pricing and will encourage businesses to properly identify their places in the market.
The plan recognizes the need for more institutional investors to bring more long-term stability to the market.
This will require a number of reforms including getting different types of financial intuitions to work more closely together, an opening up of financing channels and implementing measures to encourage greater professionalism in the equity investment environment.
It has also stressed the importance of lowering financing costs and the need for financial innovation but in a steady and orderly manner, expanding financing channels for businesses. Aligned with the guideline and governed by regulatory framework, China should continue to encourage financial innovation and develop inclusive finance.
China is now fostering a new development paradigm with domestic circulation as the mainstay but with external circulation in terms of international trade still playing an important role.
As part of this new paradigm, it is important to build a multitiered capital market. This will involve further opening-up of the financial sector, unblocking logjams that may have been caused by previous policies and a general invigoration of the market.
China’s current financing structure for nonfinancial businesses relies heavily on loans rather than equity finance, suggesting a need to develop the market. Companies need to be lured away from bank financing to look at selling equity. They will only do this if the stock markets in China develop and become less volatile.
Such reform will require a reshaping of the market and regulatory landscape. Under the registration-based IPO system, businesses will become more responsive to the market.
The essence of such reform is to allow the market to work as a threshold for access and play a decisive role.
More steps for financial openingup were noted in the action plan. This suggests that China will increase such opening-up efforts both in intensity and in scale, and doing so will help introduce more advanced technology and managerial know-how to China’s financial market.