It has been 20 years since the birth of China's stock market, which has experienced wild ups and downs. Looking back, I think we should reflect on what kind of market it has developed into, what role it has played in China's economy and what we should do next.
China's achievement in developing its capital market during the past two decades deserves recognition. The establishment of the stock market transformed the planned financing system into a market-oriented one that could allocate society's capital more effectively and push forward the development of a market economy in the country.
It also helped accelerate the joint stock holding reform of domestic enterprises with more than 2,000 companies going public. Entrepreneurs - including investment banks, rating agencies and accounting firms - that truly understand the market and competitive financial institutions have also emerged, along with the growth of the capital market.
New investment channels have been created and the market has nurtured a group of sophisticated investors with high awareness of market risks. People's attitude toward the stock market has changed, which led to an investment culture.
While there has been remarkable progress, we should also note the problems that need to be addressed. Companies tend to treat the stock market as a place to raise money, but seldom pay attention to the interests of investors and how they could pay the investors in return.
There are companies that have never distributed dividends to their investors. Returns many investors made from dividends are even less than bank deposit interests. This has led to a speculative sentiment in the secondary market, which investors see as a place to pocket quick profits instead of making long-term investment.
The regulator has so far not designed a system that could effectively protect the interests of investors, especially retail investors who often suffere from sharp market volatility.
For years, stocks in China have been scarce resources. The opportunity for retail investors to subscribe to shares in the primary market is far smaller than institutional investors. Thus, they often pay high prices at the stocks' debut trading, and are trapped after prices fall sharply.
How can a market develop if it is not the place where ordinary investors could make profits? The most urgent problem is to establish a system that truly protects the interests of investors.
In the meantime, we should continue to develop the multi-layer capital market. The size of the start-up board, ChiNext, needs to be expanded to empower more innovation-driven but cash-starved small companies to tap the capital market.
The regulator should also boost the trading scale of the bond and derivative markets to raise efficiency and substantially expand the proportion of direct financing in the domestic capital market.
Cao Fengqi is director of the Finance and Securities Research Center at Peking University.