It has been nearly 3 decades since China's capital market was established in the Shanghai Stock Exchange and the Shenzhen Stock Exchange. While certain major developments have been achieved, China still faces many difficulties and there is still a long way to achieve the goal of an open, fair and just capital market. China's capital market has always been in various reforms. With the continuous development of the financial industry, the impact of finance on the real economy is deepening, and the demand for capital market reform is becoming more and more urgent. This is especially true after China's A-share market experienced huge fluctuations in recent years, in which the development of capital market has become a focus of reform on the financial supply side.
Analysts observe that after years of reform, the transaction quality, process and system of the A-share market have not seen major changes. If it is based on the current trend, the risks in the future market are still difficult to be measured, and the quality of transactions will not be significantly improved. Anbound's researchers believe that this does not mean there is no role for financial regulators will in the future. The basic functions and policy trends of the financial regulatory authorities indicate that there are two policy directions in the macro context; it is either restricting the development, or encouraging innovation and opening-up. Both approaches had been experimented by the authorities, and we believe that based on the future need, opening-up should be the priority of the Chinese capital market.
Historically, the relatively well development of the Chinese capital market was often done under the opening-up reform that encourage the such developments. In terms of China's stock market, whether it is "equity split", "full circulation", "forced dividend", or "small and medium-sized board", "GEM" and "New Third Board", the capital market has shown increase in volume and vitality. In the process of opening-up development, some untimely mechanisms and policies are eliminated, which has encouraged the development of the Chinese stock market.
However, the Chinese stock market has never been merely a market. The huge interest competition would sometimes control the market, which will result in policy rebound. After the stock market turbulence in 2015, when Liu Shiyu took charge of the China Securities Regulatory Commission (CSRC), his main responsibility was to clean-up and rectify the financial market through a "convergence" policy in order to improve the quality of listed companies in the capital market and the quality of the financial market. Although the market environment has been improved to some extent, the problem of the capital market has not been solved. The vitality of the Chinese market is still rather limited, while the transactions are shrinking. The development of the Chinese stock markets in the past few years has not improved the effective allocation of financial resources. It seems that the chairmen of CSRC often did not chose this position, and how they fare would be depending on their luck.
Whither Chinese stock market after the rectification? An anonymous analyst said that the most crucial thing for China is actually not a specific policy initiative, but rather the basic direction of the stock market development. The same analyst said that one should see amongst the two options, namely restricting the development, or encouraging innovation and opening up, which one will be the norm. This norm of course, will be decided by which measure is the most suitable for development. The central authorities of China chose development, and therefore development will be the long-term requirement of the future of China's stock market. Restrictive measures will be an interval of opening-up and encouragement of innovation. This means that once restrictive measures have fulfilled their functions, the Chinese market will enter a phase of opening-up to promote market vitality. Failing to grasp this means the inability to understand of the requirements of the central authorities of China and the development.
From a market perspective, opening-up measures would be more in line with future needs. If we compare the listed and non-listed companies in China, we can see that non-listed companies are having higher risks. On contrary, the quality and operation of listed companies are relatively better than that of the non-listed companies because they are more or less subjected to the rules of the securities market. This also means that the listed-companies need to comply to rules and standardized management requirements. Some worry that the situation would turn chaotic after opening-up and innovation-encouraging measures are implemented. The truth is that, the capital market cannot provide absolute protection for ordinary investors, but if more companies are included in the supervision of the securities market, the companies would be more restricted, which will also enable investors to obtain relatively high-quality investment opportunities. Through getting listed, companies can be supervised by the public opinion, increase their transparency, and grow healthier. This is equivalent to investors using money to exchange part of the transparency. On the other hand, if the restrictive measures are implemented with the hope of "purifying" the capital market, that would be difficult to achieve.
Hence, the policy direction of China's capital market reform should be based on opening-up and innovation encouragement, allowing more companies to get listed, and breaking the trading restrictions with greater courage, such as the marketization of IPO prices, the establishment of T+0 system, and the phasing out of the price limit restriction and others. Through these approaches, China will be able to facilitate its trading mechanisms and opening the door towards getting listed, and release more products with market demand. Currently the reform direction of the registration-based science and technology innovation board is part of the opening-up measures, yet more efforts are needed to clear the restrictions. China has to increase the vitality with the enrichment and expansion of the market, and adopt the law of the market, at the same time using market laws to promote the continuous improvement of the open, transparent and healthy capital market.
Final analysis conclusion:
Restrictive and opening-up measures are different means to fulfill the capital market under different stages. The current capital market requires more opening-up measures to keep more companies under the restriction of the capital market.
