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The 18th National Congress of the CPC set out the requirement to accelerate the development of the multi-tiered capital market. Only yesterday, the State Council released the Several Opinions on Further Promoting the Sound Development of the Capital Market which defined the main task as creating a reasonably structured, fully functioning, transparent, highly efficient, open and inclusive multi-tiered capital market system by 2020. AsChina’s capital market has been built from top to bottom, there is still much work that has to be done to increase its servicing capability in order to meet the needs of China’s rapidly changing and evolving real economy. To accelerate the development of the multi-tiered capital market, what we need to do is to enrich market tiers and investment products through differentiated institutional arrangement and risk management, extend market services downward and strengthen its support to the real economy.
In recent years, the development of the multi-tiered capital market has accelerated and yielded certain results. One example is the reform of ChiNext rules. We will soon unveil new ChiNext IPO and refinancing rules, develop tailor-made institutional system for innovative growth enterprises and increase support for emerging industries. Moreover, we will make great efforts to develop the OTC market and give access to those SME groups which are in their infancy, unpopular with public investors due to their small size and uncertain future, but have growth potential.
As the second largest economy in the world, Chinese economy has entered the critical stage in which economic restructuring and transformation of growth mode are vital to its sustained development. The pressing and onerous economic transition shed light on weak links of finance in serving the real economy and put forward even higher requirement on the multi-tiered capital market. A case in point is the rural finance issue. Recently, the General Office of the State Council released the Several Opinions on Financially Serving the Development of "Agriculture, Rural Areas and Farmers". Among others, the document set a new task for the multi-tiered capital market by calling for the launch of pilot rural asset-backed securities to further satisfy the financial needs of leading agricultural industrialization enterprises. Another case is the green finance issue. Last August, the State Council issued the Opinions on Expediting the Development of Energy Conservation and Environmental Protection Industry, emphasizing that China will regard the energy conservation and environmental protection industry as a pillar industry of national economy. A study shows that China will invest around RMB 2 trillion in the green industry each year in the next five years. A big challenge for the multi-tiered capital market is how to play its role in creating a green finance system that attracts social capital into the green industry. One more case is inclusive finance issue. China has more than 13 million registered SMEs and 34 million individual businesses. These huge number of small and micro enterprises, though closely related to employment and people’s livelihood, have little access to financial services. It is urgent to leverage on the synergy among various financial instruments, improve risk diversification, transfer and management mechanisms, and raise the service level and sustainability of the inclusive finance system. Last year, we made a good attempt by launching the pilot Alibaba small loan asset-backed securities. There's still plenty of room for the multi-tiered capital market to develop in this regard.
To address above tasks and challenges, we must couple the financing needs of the real economy to optional financial products through the development of the multi-tiered capital market. The sustained growth of Chinese economy has led to the rapid increase of residents’ income and social wealth. Since 2011, China's gross savings amount has exceeded RMB 20 trillion each year. There has been an exponential financial management needs as well as robust expansion of domestic financial management market. However, during this period, direct and indirect investment in the capital market limped along. This is not only due to the external reason of unbalanced development of China’s financial system, but also to the inherent reason of the capital market itself. Among others, an important reason is the overall incompetence of the capital market in tapping the needs of clients, developing innovative products and managing investor suitability.
The existing 110 securities companies and nearly 6000 securities business outlets are the main channel connecting investors and the multi-tiered capital market. Previously, they only served to a great extent as a “conduit” since products were standardized, clients were homogeneous and risk was assessed by regulators. In order to enhance its inclusiveness under the new situation of transforming regulatory philosophy and spurring innovation, the multi-tiered capital market should promote transformation of the industry from public offering to private placement and from standard products to non-standard products, which will align securities companies to clients’ needs, strengthen its ability of active service to clients, and properly allocate the risk and return of real economy among various types of investors. It is the securities business outlets that face investors directly. They are the omnibus client terminal of securities companies and at the forefront of investor service and protection. The products and services of the multi-tiered capital market are finally presented to clients by them. Moreover, it is the securities business outlets that develop and identify investors’ needs and risk appetite. Presently, some securities companies have begun reorganizing their securities business outlets and reshaping the client management functions of the outlets with clients at the center. We believe that securities business outlets will play an increasingly important role in the future development of the multi-tiered capital market.
In order to accelerate industry transformation and reinforce the role of securities business outlets as a fulcrum, we will utilize SZSE’s role as a public market platform to build “the Home of Member Outlets” and give support to members’ outlets in the following aspects:
Firstly, talent training. As the product line of the multi-tiered capital market is getting longer and longer and various new rules are becoming more and more complicated, client managers of securities business outlets must acquaint themselves with these products and policies in order to describe them to clients clearly and offer services to clients precisely. During the “Open House Program” activities, we felt that front-line employees of securities business outlets are hungry for high-quality information. We will make use of our advantages to organize the most excellent analysts in the industry to provide support to employee training of securities business outlets, describe products to them, interpret new policies and deliver product and policy information to investors precisely and continuously. For instance, we all know that M&A and restructuring is a major method of sharpening the competitive edge and profitability of listed companies. However, for a long time, there are many obstacles for cross-region, cross-sector and cross-property ownership M&As. The Opinions of the State Council on Further Optimizing the Environment for M&A and Restructuring of Enterprisesproposed systemic measures to tackle this problem. The frontline backbone employee of the securities business outlets should understand the significance and impact of the policy on the capital market, which will help reinforce market confidence.
Secondly, promotional materials and software. The securities business outlets need to produce promotional materials and software to conduct investor education and product promotion. Self-development by each securities business outlet is costly and difficult. It is in this regard that we have a lot of work to do. Last year, we developed the platform of “Easy Investment Knowledge” (Easy IK) that is based on SZSE’s real historical trading data and incorporates many investment educational games such as “mock investment” and “psychological test”. Investors can apply different investment strategies to the stocks they had actually invested to assess the results vs. their actual performance repeatedly, thus helping investors understand themselves. Last year, we delivered the software to a few securities business outlets and conducted mock investment contests which were proved very popular. The enhanced “Easy IK” will be promoted to all the securities business outlets in the country within this year.
Thirdly, product development. Securities business outlets must have targeted product system in order to serve clients better. SZSE actively supports securities companies’ product innovation, business argumentation and appraisal as well as their development of products which are badly needed by clients, and help them with risk monitoring and prevention. For example, in 2011, in order to raise the investment efficiency of clients’ margin balance, we promoted the launch of Xianjinbao, a cash management product offered by securities companies. At present, 49 securities companies unveiled Xianjinbao funds which attracted RMB 44.8 billion in total from more than 1.3 million clients. Xianjinbao will be popularized after adjustment according to the new fund law. In 2012, we evaluated the feasibility of using clients’ transaction settlement fund accounts for consumer payment purposes and drafted the Technical Guidelines on the Payment System of Securities Companies. So far, 8 securities companies offer such service with 51000 contract clients
In conclusion, investor service is the precondition and basis of investor protection and the multi-tiered capital market should be investor-oriented. We must realize that there will be a long way to go before China’s investor structure transforms from retail investor-dominated to institutional investor-dominated, which poses a practical challenge to product innovation and institutional building.
