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Yi Huiman, the head of China Securities Regulatory Commission, says expanding direct financing will deepen the capital market reform. Photo: Simon Song
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China’s regulator makes capital market funding a top priority as it looks to bolster economy

  • Expansion of direct financing and introduction of registration-based system for all IPOs tops the CSRC’s agenda in the five-year plan, says Yi Huiman
  • Policymakers want to reduce the reliance on financing from banks, with more tech companies being encouraged to go public amid frayed US-China ties
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Zhang Shidong
Zhang Shidongin Shanghai
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China has made direct financing a top priority of the stock market regulator as part of its five-year plan, as the nation turns to the capital market to fund companies that will help its transition to a more technology and consumption-based economy.

Expansion of direct financing and extending the registration-based system to all initial public offerings (IPO) top the six major tasks outlined by the China Securities Regulatory Commission (CSRC), Yi Huiman, the top securities regulator, wrote in an article in a book on China’s 14th five-year plan published by the government. The coming five-year plan runs from 2021 to 2025.

Yi said the goal can be achieved because of China’s growth potential, improving economic fundamentals, strong demand for wealth management and rising appeal of the stock market to international investors.

While China’s stock market is the world’s second largest with a combined capitalisation of US$10.4 trillion, the size is only a quarter of the US market. Policymakers want to reduce the reliance on financing from banks, with more tech companies being encouraged to go public amid frayed ties between Beijing and Washington.
The Star Market has become the preferred fundraising venue for new economy Chinese companies. Photo: Reuters

“Expanding direct financing is of great significance to deepen the financial supply-side reform and achieve more efficient and sustainable development,” Yi wrote in the article.

China’s benchmark Shanghai Composite Index rose 1.8 per cent on Tuesday, as traders interpreted the news as a sign that more companies that are representative of China’s new economy will be available for public trading.

New share sales this year are on track to reach the highest level since 2010. A total of 342 companies have raised 423.9 billion yuan (US$64.5 billion) from IPOs so far this year.

Shanghai’s Star Market, which started last year to host home-grown hi-tech companies after being mooted by President Xi Jinping, is leading the fundraising this year, with seven out of the top 10 IPOs coming from the new board. Chip maker Semiconductor Manufacturing International Corp, which raised 53.2 billion yuan in July, is the biggest stock offering on the mainland in 2020.

China will optimise a multi-tier capital market by introducing innovative measures for the Star Market and the ChiNext boards of start-ups, improve the quality of listed companies and further promote the development of the bond market, according to Yi’s article. The nation will also accelerate the development of private equity funds and encourage more investment by institutional investors, it added.

Yi, a veteran from the banking industry, took charge of the CSRC in January 2019. The Shanghai Composite Index has gained 33 per cent since then.
This article appeared in the South China Morning Post print edition as: Expansion of direct financing tops regulator’s agenda
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