Capital market reforms to get fresh impetus

China will deepen capital market reforms and opening-up and continue its efforts to avoid risks this year, according to the China Securities Regulatory Commission.

By sticking to the rules of "perfecting fundamental systems, nonintervention and bearing zero tolerance for misconduct", which are also the intrinsic logic safeguarding the high-quality development of the capital market, more efforts will be made to normalize initial public offerings and refinancing, the CSRC said during its annual work conference on Thursday.

Reforms at the investment end will be stressed, said the regulator. To be specific, the supply of equity fund products will be further expanded while innovation in services is also important. Related policies should be finalized at a faster pace so that pension funds can invest in mutual fund products, which will help attract more long-term capital into the market.

Ba Shusong, executive director of the HSBC Financial Research Institute at Peking University, said the Chinese capital market structure should be further optimized, especially at the top level.

"There should be a mechanism to assess long-term capital managers' performance and related risks in order to enhance management efficiency. Meanwhile, equity investment and alternative investment should be developed while favorable tax policies should be introduced. By creating a better environment in general, the pension funds will be used more efficiently," Ba added.

The registration-based IPO mechanism will be evaluated and related regulations optimized so that the mechanism can be promoted throughout the A-share market, said the CSRC.

A systematic opening-up will be promoted steadily. While actively advancing the cross-border auditing cooperation, the CSRC will strengthen its supervision capabilities when the Chinese capital market is further opened up.

During the China International Finance Annual Forum 2020 held in early September, CSRC Vice-Chairman Fang Xinghai said the regulator will enhance communication and coordinate policies with overseas capital market supervisors to strengthen cross-border cooperation on auditing for listed companies. The commission will seriously crack down on financial fraud to protect the legal rights of investors all over the world, he said.

The regulator also said that sustained efforts need to be made to prevent financial risks, given the multiple uncertainties and challenges in the domestic and international markets. The infrastructure and legal system of the country's bond market should be perfected so that the bond default risks can be resolved.

The basic requirements for private equities should also be strictly implemented, said the CSRC. A risk prevention and management mechanism connecting regional and central regulators should be established. Efforts should be accelerated to roll out PE regulations, said the commission.

Data from Shenzhen Rongzhi Investment Consultant Co, a consultancy which tracks the PE market, showed that there were 109 Chinese PEs with respective assets under management of over 5 billion yuan ($773.8 million). But "fake PEs", which carried out illegal financing, started emerging last year when the industry boomed. To this end, the CSRC released regulations for PEs on Jan 8, which specify the management scope, structure, qualification and investment targets.