China’s stock market: Beijing issues unprecedented guidelines calling for transparency, risk-management

China has issued an unprecedented set of policy guidelines to push for transparency, security, risk-management and vibrancy in the country’s US$9 trillion stock market, sketching out a view of what the world’s second-largest capital market could look like by the middle of the century as Beijing solidifies its goal of becoming a financial superpower.

A document published by the nation’s cabinet on Friday promises to promote the “high-quality” development of China’s capital market by strengthening supervision and guarding against risks.

It comes just two months after former Shanghai vice-mayor Wu Qing, dubbed the “broker butcher” for his tough approach to tackling market malpractice, was brought in to head the country’s securities regulator.
The document released by the State Council after the markets closed on Friday evening sets out nine guidelines that formulate a framework to develop the market, demanding a better mechanism for protecting investors’ interests and an improvement in the quality of listed companies over the next five years.

By 2035, the market should have achieved “a reasonable structure of investing and fundraising” in which listed companies will have demonstrated a significant improvement in quality, it said. There must also be demonstrable progress in cultivating first-class investment banks and financial institutions.

The push highlights the fact China’s state support for its stock market has entered a new stage, with some of the supportive measures proposed by the China Securities Regulatory Commission (CSRC) now being written into the State Council’s documents. It is rare for China’s cabinet to issue documents directly targeting the stock market, with the two previous such occasions occurring in 2004 and 2014, both preceding a raging bull market.
At a high-level meeting in January, President Xi Jinping elaborated on his goal of making China a “financial superpower” – with a financing model that is “distinct from Western models”, as it focuses on financing support for the real economy.

He emphasised the importance of preventing systemic financial risk, and called on financial regulators and industry authorities to clarify their responsibilities and strengthen cooperation.

“Financial regulation must have teeth,” Xi was quoted by state media outlet Xinhua as saying.

Friday’s guidelines complement four documents issued last month by the CSRC pledging to crack down on fraudulent listings, raise the threshold for new listings and require publicly traded companies to return more to investors through buy-backs and dividend payouts.

According to the document published today, companies will be required to disclose their dividend payout policies when they list, and stricter rules on information disclosure and corporate governance will be implemented to restrict stake reductions by major shareholders and push listed companies to boost investment value.

The regulators will also work out standards for abnormal trading and manipulation, issue rules to strengthen the supervision of high-frequency transactions, and mete out severe punishments in cases of malicious manipulation and short-selling, it said.

The document also called for the fast-track approval of exchange-traded funds, the expansion of index-based funds, and a higher proportion of stock-focused funds in the mutual fund industry.


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