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Regulator vows stock market reform
( 2003-11-11 11:05) (China Daily)

China¡¯s top securities regulator has vowed to promote reform in the capital market by building a multi-layered structure and introducing more market-driven rules on share issues and other schemes.

The present focus is on standardizing and developing the main board market but the government will also try to build up the second board market in phases, which will start with the establishment of a special counter for small and medium-sized enterprises (SMEs), Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), wrote in a signed article published in China Securities Journal yesterday.

The capital market should be multi-layered to meet diversified financial demands of enterprises and needs of investors, Shang said.

The SME counter will create a new financial channel for growing enterprises and start-ups; and provide experience for the launch of the second board.

The start of the second board market, first discussed several years ago but later shelved because of risk concerns, seems to be now back in the agenda.

Shenzhen, the spot chosen for the new board, has amended the plan and proposes to first launch a special counter for SMEs.

But the CSRC¡¯s blueprint for the stock market covers many other sectors.

Shang says the tone of the reform is to ¡°upgrade resource allocation in the capital market,¡± which means that investors will be encouraged to put their money in sectors and companies that have good investment value.

That will be done through the establishment of a series of market-driven rules, which will reduce government interference and advocate free market competition.

Meanwhile, investor protection is also reiterated, specially in regard to liquidity.

Shares in listed companies are split into two parts - one tradable; and the other non-tradable stock owned by the State. The twisted structure has led to a series of problems in the trading system, share issue schemes and interest distribution.

Shang said the reform of the liquidity issue must first ensure that the lawful rights of public investors are well protected, but he did not give a timetable for a State-share sell-down, which caused panic among investors when it was attempted some years ago by the government.

On the other hand, the authorities will also encourage product innovation to give investors wider choices.

The bond market will also be expanded to boost direct financing. For example, more companies will be encouraged to issue corporate bonds and some will also be able to try the asset securitization business.

China¡¯s capital market is currently overweighted in equities, while bond products are very limited, so product innovation should be encouraged to enable investors spread risks, said Shang.

To boost fund supply, the securities regulator will also give wider access to institutional investors like insurance companies, social security funds and qualified foreign institutional investors (QFIIs).

To ensure the quality of listed companies, CSRC is also conducting a bottom-down reform in the share-issue scheme.

It will enhance transparency and public supervision of the listing committee and introduce a sponsor system so that only companies with sound performance can get listed, said Shang.

There are presently too many administrative rules that hinder market innovation, said Zhu Li, president of China Galaxy Securities.

Only innovation can give more impetus to both investors and listed companies and will ensure better allocation of resources, he said.

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