Wang Jinbin: China's Capital Market Should be the Platform to Advance Financial Development and Deepen Financial Value

Thirty years ago, Shanghai Stock Exchange and Shenzhen Stock Exchange were successively founded and launched into operation. Through the dramatic development over the past three decades, China's capital market has played an increasingly important role in regulating social savings, guiding capital disintermediation and forming the modern financial system with both competition and complementation of bank intermediary and securities market so as to optimize financial structure, improve the efficiency of social capital allocation and spur innovation by enterprises.

China's capital market has turned out to be:

l The functional platform of financial market value discovery: since 2019, the pilot registration system of science and technology innovation board (STAR Market) has been started, and the overall reform of IPO registration system has been underway. The IPO system and value discovery function of stock market will be more market-oriented.

l The training and management platform of social financial risk awareness: the evolution of capital market accelerates the process of risk socialization in China's economy and improves the social awareness of financial risk management.

l The practice and demonstration platform for enterprises to improve the modern corporate governance structure: as of Nov. 27, 2020, the circulating stocks in stock market accounted for 87.1% of total stock issues, and the "foot voting" corporate governance model of full stock circulation facilitates the equity transfer of listed companies;

l The value maintenance and appreciation platform of social wealth management: as of Oct. 2020, the financing stocks of government bonds registered nearly CNY45 trillion, and the financing stocks of corporate bonds exceeded CNY27 trillion. By the end of Nov. 2020, the total market value of China's stock market was close to CNY80 trillion while the value of tradable A-shares totaled CNY60 trillion. Nearly 170 million individual investors are directly engaged in stock trading or indirectly invest through more than 380,000 institutional investors.

l The credit building and management platform for the whole society: the credit awareness of the whole society has been effectively strengthened by means of no rigid payment of wealth management products, crackdown on debt evasion, enhanced information disclosure of listed companies, tightened delisting measures, etc.

l The opening-up platform for internationalization of finance in China: as of Oct. 2020, more than CNY2.8 trillion of Chinese bonds were held by foreign institutions that accounted for around 3% of the inter-bank bond scale. Similarly, the proportion of A-shares held by foreign investors was also around 3%.

l The common development platform for the integration of state-owned capital and private capital: the system of State Assets Supervision and Administration Commission (SASAC) presently controls around 1,000 listed companies that account for one fourth of the total number of listed companies, and the SASAC-controlled market value was about 30%. There are around 2,500 private listed companies.

On the path towards the targets of legalization, marketization and internationalization, China's capital market needs to address several issues such as over-dependency on the financial structure of bank system, incomplete fundamental system of capital market, frequent violating behaviors of listed companies, shortsighted investment in stock market, inadequate protection of interests of medium and small investors, lack of benchmarking discount rates for debt market and stock market, and imperfect internationalization of capital market in China.

Looking forward to the future, China should vigorously develop the capital market and advance the process of risk socialization. We should further uplift the proportion of direct financing, optimize the financial structure of financial market, make the capital market deeper and wider with higher liquidity, establish a modern financial system with relative balance between bank intermediary and securities market, thus better serving the growth of real economy. These are the requirements of "dual circulation" new development pattern to prevent and mitigate financial risks, and improve the wealth management for mass people.