CSRC tells bourses to nurture innovation

China’s capital market should step up reforms to better support scientific and technological innovation for high-quality development and improve the quality of its listed companies to better serve the real economy, experts said.

Speaking at a symposium on the 30th anniversary of the establishment of China’s capital market on Monday, Yi Huiman, chairman of the China Securities Regulatory Commission, said that the weighing of direct financing should be further increased while the mechanisms for the different boards of the A-share market should be perfected.

Public information shows that direct financing, including equity and debt financing, accounted for about 29 percent of all financing channels by the end of September. The rate stands at 80 percent in mature markets.

The capital market should also shoulder more responsibility in supporting technological innovation, said Yi. The Shanghai and Shenzhen bourses should look to become world-class exchanges as well as top centers for innovation capital, he said.

The Shanghai bourse said in an announcement on Dec 23 that support will be extended to listed technology companies so that they can lead the development of the entire industry. This in turn will help the Chinese capital market become a major destination for innovation, said the SSE.

The quality of listed companies should be further improved, which is another key task concerning the reform of the Chinese capital market, said Yi. To that end, market infrastructure should be consolidated by focusing on the registration-based initial public offering mechanism and delisting rules, he said.

Zhang Xia, chief strategist of China Merchants Securities, said stricter delisting rules adopted by the Shanghai and Shenzhen exchanges will improve the quality of A-share listed companies in the long run. Domestic and foreign investors will be attracted to the capital market as more competitive firms will remain after disqualified companies are eliminated, he said.

Much progress has been made since the Chinese capital market was officially established with the launch of the Shanghai and Shenzhen bourses three decades ago, with the two-way opening-up being one of the highlights. Foreign capital flows into the A-share market have seen positive growth over the past three years, thanks to the stock connect programs linking Shanghai, Shenzhen and Hong Kong bourses, the relaxed limit on foreign ownership in financial institutions and the completed mechanisms for qualified foreign institutional investors, said Yi.

China has been making steady progress in terms of opening-up of the capital market. Based on the regulations released in late September, qualified foreign institutional investors have been permitted to conduct margin trading as well as stock borrowing and lending business from Tuesday. Shanghai-based Guotai Junan Securities conducted the first such transaction, while Beijingbased CITIC Securities opened the first margin trading accounts for its QFII clients on Monday.

Cao Haifeng, an analyst with UBS Securities, said in a report that foreign investors’ position in the A-share market is about 4 percent of the market’s total value, while the rate in Japan is over 70 percent. As the QFIIs increase in China, foreign investors’ position will also increase, which will promote the institutionalization of the A-share market, said Cao.