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Distinguished Guests, Ladies and Gentlemen:
I am very pleased to participate in 2013 CCTV Chinese Listed Companies’ Summit.
The theme of this summit is economic transition and upgrading. We recently held a seminar for listed companies in medical and pharmaceutical industry in Yinchuan, which discussed how to leverage the advantages of listed companies to accelerate the upgrading of the industry. The medical and pharmaceutical industry has great potential for development in China's economic and social transformation process. But like many emerging industries, the medical and pharmaceutical industry is characterized by many small competitors and market fragmentation. Even after a large-scale consolidation, the number of pharmaceutical companies rose from 3,352 in 2003 to the present 6,000. The top 10 companies only account for 15% of market share. 70% of the companies report less than RMB 30 million in annual sales revenue. The new administration initiated reform measures to promote economic transformation and upgrading, streamline administrative control, accelerate delegation of power, release the power of innovation of the private sector and establish a unified national market. During the seminar, listed companies expressed a general belief that these reform measures hit the nail on the head and the industry will usher in strategic opportunities for large-scale consolidation and upgrading.
In this process, the capital market serves as a basic for expectant listed companies. Because the capital market not only provides a smooth financing channel but also instruments and tools for market-based mergers and acquisitions. The capital market is highly transparent and sensitive to prices. As long as sound policies and good services are in place, the market performance will positively interact with corporate operations, galvanizing the listed companies to make continuous improvements in the direction of industrial transformation and upgrading. During the seminar, participants from listed companies expressed many practical needs and suggestions for improvement for of capital market services.
Listed pharmaceutical companies are representative of all issuers of SZSE. The multi-tiered capital market of SZSE features highly diverse sectors. Over the past year, we have been paying close attention to the demands of listed companies. We’ve hosted forums for photovoltaic, seed, and other industries. Recently, SZSE and China Association for Public Companies (CAPCO) jointly conducted consultation and research on listed companies in industries such as advanced equipment manufacturing. We have gained many insights in how capital markets supports the economic transition and upgrading from the needs expressed by our listed companies.
For example, communication, interaction and cooperation among industry leaders are necessary for listed companies to promote the significant consolidation of the industry. Thanks to the advantage of regions where listed companies cluster, we expect to establish a communication platform for listed companies to keep abreast of industry trends, understand their positioning, enhance peer communication, break geographical boundaries, enable companies in different regions to appreciate advantages of disadvantages of themselves and industry peers and create opportunities for cooperation.
Listed companies have noticed that the CSRC has been making great efforts in supporting mergers and acquisitions (M&As). Besides examination and approval, financing, pricing and applying differentiated review procedures to different companies as well as other issues of public concern, more specific problems need to be solved in optimizing mechanism accordingly. For instance, more improvements are expected in validity of resolutions of board meetings and shareholders’ meetings, trading suspension and resumption arrangements and pricing evaluation. We need to further heighten measures against insider trading and improve registration system of persons with inside information. We need to further enhance quality of service by financial consulting firms, increase capital and manpower input in M&A business by investment banks and strengthen the standardized management during the asset evaluation of M&A. We need to develop financing instruments such as M&A funds to meet the demands of M&As.
Listed companies have also recognized that understanding and recognition by shareholders and investors are necessary for them to take full advantage of the capital market and seize opportunities presented by industrial transformation. Only under such a condition can they ensure the implementation of strategic measures. Hence, at present, it is especially important to do a good job in investor relationship management. To achieve that goal, we need to develop more effective communication platforms and mechanisms, build a bridge of mutual trust between listed companies and investors and provide more services and guidance for listed companies.
When listed companies are seeking development in industry consolidation, the situation is quite different from the period when they were experiencing speedy development in the Blue Sea of a specific industry segment. They have to jump out of their familiar but saturated areas, gather more talented people, build stronger teams and establish strategic partnerships in order to achieve the synergy of team and talents on a wider scope. Venture companies used to rely on the mutual trust between team members. But when they become listed public companies, they need to employ long-term systemic measures like corporate governance and equity incentive. However, it has been a new challenge for many companies to establish a sound system of corporate governance and equity structure. Such a system should be suitable for them and can ensure the stability of their team and achievement of their goals. According to statistics, in a few years ahead, several hundred companies face the issue of “successors” of the management.
In addition, in the process of issuer cultivation and listing promotion, we have received feedback from many pre-IPO companies. According to them, emerging industries are still in the budding period, with many companies below listing standards. For the capital market to better support industry upgrading, we must extend our services downward to cover more emerging companies. Besides the optimization of listing standards congenial with growth patterns, we should boost the OTC market and enable infant enterprises to access services by seasoned professional services by securities firms, accounting firms and law firms. From the very beginning seasoned investors provide emerging companies with capital, form restraint mechanism and guide them to improve accounting fundamentals and corporate governance. Through the measures mentioned, we can construct the long missing support mechanism in the capital market for the growth companies in China. At the same time, we should explore innovative methods and products such as SME Private Placement Bonds and Asset-backed securitization products to enable small and micro companies to benefit from the capital market.
The State Council has recently released Guidance on Financial Support for Economic Restructuring and Upgrading, or “Ten Guidelines for Financial Development”, clarifying main tasks for the capital market development in the future. With listed companies’ suggestions in mind, we know that it is a systematic project for capital market to support economic transition and upgrading. Introduction of a series of relevant policies is critical to drive economic upgrading. But it requires a platform that mobilizes the power of all aspects of the capital market and improves services to listed companies in an all-around way to achieve the goal.
Therefore, the China Securities Regulatory Commission (CSRC), stock exchanges and all levels of capital market have attached great importance to listed companies’ suggestions, and have taken measures to find out and solve the problems one by one. This year, we proposed of building a Home for SMEs, a comprehensive, open and public platform that integrates listing, training, information sharing, research, exhibition, business and other value-added services, to enhance communication among listed companies. Under the leadership of CSRC, SZSE has examined the internal regulatory barriers for M&A and improved basic rules such as Through-put Information Disclosure. In this way, we have streamlined procedures and facilitated operations to make preparation for highly efficient M&As. SZSE also helps listed companies build a long-term investor relation management mechanism. We have expanded the coverage of interactive information on internet by promoting Easy IR, Easy Voting and other on-line investor relation management platforms. We have launched the pilot program of video-conferencing of general meeting of shareholders via internet and promote on-line voting system. We also maintained the tradition of Open House Programs for investors to make site visits to listed companies. By establishing the corporate governance research center, SZSE makes an effort to find out and diagnose main corporate governance problems baffling SZSE-listed companies, especailly small and median-sized companies and non-state-owned companies which dominate Shenzhen market. Recently, we put forward suggestions for improvement of corporate government for SZSE-listed companies and released SZSE Annual Report on Corporate Governance. SZSE also summarized experiences of SME private placement bonds, Alibaba small loan asset-backed securities and other experiences to support small and micro business. We joined in the establishment of Qianhai Equity Exchange and other regional equity exchanges, exploring effective channels of the capital market to serve small and micro companies.
As China is the world's second largest economy, transformation and upgrading will inevitably be a long and arduous process, and must go through pains of transition. But exactly for this reason, the capital market is called into action to play irreplaceable strategic role. In fact, as indicated by this year's market performance, market participants have begun seeking opportunities and breakthroughs during the economic transformation and upgrading. Recently, President Xi Jinping's speech during his investigative tour in Wuhan and Political Bureau of CPC Central Committee’s deployment on economic front in the second half year have both signaled strong commitment to advancing reform and promoting economic transformation and upgrading. This further clarifies market expectations.
Innovation is an important driving force for economic restructuring. Economist Joseph Schumpeter once said that innovation means breaking of status quo, acceleration of entrepreneurial activities in recombination of various factors and the emergence of innovative entrepreneurs in large numbers. Listed companies are representatives of China's top-performing entrepreneurs. They have the best conditions for innovation. We should focus on listed companies, revitalize existing assets and make good use of the incremental, enhance the quality and efficiency of listed companies, and achieve the important breakthrough of China's economic transformation and upgrading. This is not only an important task for the capital market to give financial support for economic transformation and upgrading, but also the foundation and source of power for the capital market to enhance investment returns and achieve healthy development.
Thank you!
