China’s capital market needs to deepen reform to achieve internationalization

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Illustration: VCG

The Chinese capital market has made continuous progress and seen many positive changes over the past ten years. The number of listed companies increased from 2,494 to 4,733, ranking second in the world. The total market size increased from 23 trillion yuan ($3.4 trillion) to 84.6 trillion yuan, which increased approximately fourfold.

From the perspective of market structure, China has basically formed a multi-level market system including major councils, Science and Technology Innovation Council, ChiNext Council, Beijing Stock Exchange, National Equities Exchange and Quotations (NEEQ) and regional markets. stock markets.

Over the past decade, in a changing market environment both at home and abroad, China has maintained unwavering confidence and determination to actively promote the development of its capital markets through a market-oriented approach. market. The objective remains clear: to build a standardized, transparent, open, dynamic and resilient capital market. Commodification, legalization and internationalization are the fundamental directions for the future development of China’s capital market.

Among these, commodification is seen as a cornerstone. Reforming the initial public offering system to a registration-based mechanism is of paramount importance in the development of China’s capital market. Registration reform must let the market play a major role in setting share prices and selecting companies.

The next level after commercialization is the rule of law in capital markets, which will determine whether the Chinese capital market will develop into an international financial center in the future. An international financial center must attract global investors with good expectations of return on investment. The rule of law is an essential basis for good performance expectations in a capital market.

Internationalization is the ideal goal of Chinese capital market development. To become a new international financial center, domestic markets must be fully open and accessible, which is also an important goal of the country’s capital markets internationalization program.

The main focus of China’s capital market in the next decade is three aspects. The first is to focus on the reform of the registration system, take advantage of market-oriented reform as the comprehensive guide, comprehensively deepen the reform of all aspects of the capital market, and implement the registration system in the whole market at the appropriate time. Second, China should focus on promoting product and system innovation, improve the ability and efficiency of capital markets to serve the real economy, and promote the structural upgrading of listed companies. Third, greater openness. This is the most ambitious and difficult task. The goal is to expand and even fully open up, and strive to make the Chinese capital market a new international financial center for the global economy.

To measure whether the financial market of a large country is an international financial centre, a very important indicator is the proportion of foreign investors. On the American market, foreign investors represent 15%. The economic structure and market structure of China is somewhat similar to that of the United States. With a huge and powerful capital size, a proportion of 15% is already a high degree of openness for the Chinese capital market. To achieve this goal, China’s capital markets need to be further reformed.

First, China should promote sustainable yuan trade reform. Second, to further consolidate China’s rule of law system, it is necessary to strengthen the regulatory environment. Any international financial center must be based on laws that protect market participants. Third, efforts to improve the maintenance of policy coherence and stability are key to attracting foreign investors. Fourth, transparency and disclosure of information are also important for investors to make decisions. Fifth, the broader economy must encourage continuous innovation. Without innovation, if the economy slows, the attractiveness of the capital market will suffer.

The article was compiled based on a speech delivered by Wu Xiaoqiu, Dean of the Capital Markets Research Institute of China, at a lecture series titled “China in the Last Decade” organized by the Chongyang Institute of Financial Studies of Renmin University of China. [email protected]

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