In guidelines issued last Friday, the State Council vowed that it would push ahead with a raft of measures designed to make the country's capital market more transparent, open and efficient.
The guidelines, which were reportedly drafted by the China Securities Regulatory Commission (CSRC), said that authorities would encourage direct financing, streamline the IPO process, open up the capital market to foreign investors and develop a system for local governments to directly issue bonds.
After the guidelines were released, the Shanghai Composite Index rose by 2 percent to finish at 2,052.87 Monday, but edged back to 2,024.97 when trading closed Thursday. The Shenzhen Component Index shot up by 2.17 percent to reach 7,318.14 Monday, but dropped back to 7,213.77 Thursday.
As domestic GDP growth slows and banks struggle with liquidity and credit squeezes, the guidelines were unveiled with the aim of restoring investor confidence in the country's economy and revitalizing the sluggish stock market.
The guidelines contain several pieces of encouraging information that signal the central government's determination to reform the market. The State Council affirmed that the market will play a decisive role in resource allocation, indicating that the Chinese mainland's capital market will be controlled less tightly by authorities and will therefore become more transparent.
Central leaders also vowed to push forward a registration-based IPO system as a replacement to the current opaque and corruption-plagued approval-based system. Under the new system, which was promoted by the country's top leadership during the Third Plenary Session of the 18th Communist Party of China Central Committee in November, the CSRC will be tasked with monitoring public companies' information disclosures, instead of granting listing approvals to businesses in line for an IPO. This will not only shorten the listing process, but also make the market more dynamic and less bureaucratic.
The guidelines also say that authorities will help complete the country's still imperfect stock delisting system. For some time, market watchers have been anticipating the completion of this system, which will sweep away many poorly performing companies that have been shielded from delisting by their political connections.
The State Council further pledged to develop a system for local governments to directly issue bonds. Such a step will provide local authorities with cash to pay back their debts and fund infrastructure investments. In addition, the system may reduce incentives for local authorities to borrow through special vehicles, a development which would surely mitigate severe local government debt problem.
The State Council also plans to increase quotas for the country's Qualified Foreign Institutional Investor and Qualified Domestic Institutional Investor schemes, and cooperate with Hong Kong, Macao and Taiwan to facilitate cross-border investments. This is a vital step for the mainland to open up its capital market and to internationalize the yuan.
Officials have vowed as well to develop a private equity market and encourage the development of financial derivatives.
Although the guidelines appear to have already benefited the mainland's stock market, it is something of a disappointment to see that policymakers did not feel the need to raise bolder, more dynamic suggestions.
Almost all of the reform measures described in the guidelines - such as the registration-based IPO system and the expansion of local government financing channels - were repeatedly stressed during the Third Plenary Session, the Central Economic Work Conference and the Government Work Report.
The recent boost received by the stock market will likely prove short-lived as well since the market is fundamentally depressed by a slowing economy. Hence, if the mainland's economic prospects are not brightened, the stock market will continue to wither.
Moreover, the recent guidelines only lay out a general path for authorities to follow over the next few years, and have failed to provide more details that can encourage investors. For instance, no specific measures related to protecting small investors or reforming State-owned enterprises were mentioned.
The CSRC, the China Banking Regulatory Commission and the central bank also need to resolve many internal conflicts and complete a time-consuming and complicated bureaucratic process in order to draft detailed rules following the guidelines' lead.
While the State Council's intentions to reform the capital market are good, authorities and regulators still have a long way to go before the benefits of the recent guidelines are felt in the market.
The author is a reporter with the Global Times.
