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CSRC Vows to Reform Stock Issue System

China's top securities regulator yesterday vowed to improve infrastructure construction and product innovation in the stock market to attract more investors.

Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), said the commission will further reform the stock issue system to introduce more high-quality listed companies and speed up relevant legislation.

The move will upgrade market resources and make them more appealing to investors, Shang said yesterday during a forum on capital market development held at Peking University.

Shang predicts a number of new institutional investors, including pension fund operators and insurers, will enter the stock market to make direct investments in the coming years.

They will need a better investment environment and risk prevention scheme, he said.

A series of reform plans are therefore expected to improve the market infrastructure, which will also be a future focus of work for the commission.

The reform to the stock issue system, which started this year, will be intensified in 2005.

The pricing of new share issues will become more market-oriented and regulators will strengthen discipline for the handling of share issue applications.

New products are also expected to be introduced.

Shang said CSRC is drafting a regulation on allowing securities companies to issue sub-ordinated bonds.

The authorities also encourage the development of fixed-income investment products and financial derivatives.

More blue chips are also expected to become listed to upgrade the structure of listed firms, said Shang.

China's stock market has been lingering in the bearish stage for more than three years. Market capitalization has been shrinking and the ratio of direct financing in the overall financing volume in China has declined to less than 4 percent.

Even a policy boost cannot stimulate market sentiment enough nowadays as investors continue to lose confidence.

"The key issue for the stock market is to revive investor confidence," said Li Yining, dean of the Guanghua School of Management at Peking University, while attending the forum yesterday.

Though there have been many suggestions for reforms to the market, it will take time for China's stock market to really get in line with international standards and become a mature market, Li said.

The market is still in transition now and investors have to respect its condition, he said.

Discussion on the future of China's stock market has never ceased.

The State Council issued a guideline document to stimulate development of the capital market in February, which listed a series of reform plans.

The point is how to implement the plans, experts said.

It requires a lot of co-ordination between relevant departments to implement the reforms, said Zhou Zhengqing, deputy director of the Financial and Economic Committee of the National People's Congress, China's top legislature.

Interaction between the monetary market and capital market, for example, has to be enhanced, he said.

Another major bottleneck for capital market development is the split share structure, which resulted from the existence of a large volume of nontradable shares in the listed firms.

Shang Fulin with the CSRC said authorities will try to seek an appropriate way to resolve the structural problem in the market.

However, such reforms will be carried out in "a prudent and gradual manner," said Shang, assuring investors the authorities will fully respect market rules and protect investors' interests.

China will further implement its promises to open up the capital market, Shang said.

The CSRC has approved one new securities house joint venture and six fund management joint ventures this year, lifting the total number of such ventures to four and 13 respectively.

It also gave licenses to 15 new qualified foreign institutional investors this year to allow them to invest in A shares, bonds and mutual funds.

Foreign institutions have injected fresh blood into China's stock market, but they also intensify competition for Chinese securities businesses.

Securities firms, for example, are forced to seek new profit models and upgrade management to become more competitive.

Presently, the business scope is very narrow for securities companies in China, said Zhu Li, president of China Galaxy Securities.

A faster pace of innovation and systematic reforms to change the situation are needed, he said.

Moreover, as foreign institutions gain wider access to the Chinese capital market, domestic institutions should also gain a similar entrance to overseas markets, Zhu said.

(China Daily December 22, 2004)

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