State Council, Promotion of the Reform, Opening and Stable Development of the Capital Markets Several Opinions

Issued: January 31 2004

Main contents: The Opinions state that in order to establish capital markets that are transparent, highly efficient, well functioning, safely operating and with rational structure and sound mechanisms, direct financing is to be expanded, modern market systems improved and the fundamental functions of the capital markets in distribution of resources further developed.
Specific policies are put forward to achieve such objectives. Institutional investors, which are mainly fund management companies and insurance companies, are to be the leading forces in the capital markets. Thus major efforts will continuously be put to develop securities investment funds. Insurance capital is encouraged to be directly invested in the capital markets in various ways.
Channels to finance securities companies are increased, for example, issue of shares and bonds, pledged loans, interbank borrowing, and mergers and acquisitions.
Securities products are to be diversified. The GEM board will be established to develop a financing channel for small and medium-sized enterprises. More bond and futures products are to be introduced; and new share and bond products as well as derivatives are to be invented.
As for listed companies, transfer of non-traded shares will be regulated, a sponsorship system for issue and trading of securities put forward, mergers and acquisitions encouraged and re-financing policies further improved. The corporate governance structure should also be improved. Liability shall be pursued against controlling shareholders who prejudice the interests of the listed company and other shareholders. Liability shall also be pursued against senior management personnel of delisted companies for dereliction of duties.
The Opinions also call for the regulation of intermediaries such as securities companies, futures companies, securities and futures investment consultancies, securities credit rating institutions, accounting firms, law firms and asset valuation institutions.
Related legislation: State Council, Further Strengthening Overall Control of the Securities Market Circular, Dec 17 1992, CLP 1993 No.2 p5 and Central Committee of the Communist Party of China, Several Issues Concerning Perfection of the Socialist Market Economic Structure Decision, Oct 14 2003