Promoting the Reform, Opening Up and Stable Development of the Capital Markets Several Opinions

The vigorous development of the capital markets is an important strategic task, and is highly significant for China's achievement of the strategic aim of quadrupling the national economy in the first 20 years of this century. First, it is beneficial to improving the socialist market economy system and further developing the function of the capital markets to optimize resource allocation and effectively transform public funds into long-term investment. Second, it is beneficial to restructuring and strategically reorganizing the state-owned economy and accelerating the development of the non-state-owned economy. Third, it is beneficial to increasing the ratio of direct financing, improving the structure of the financial markets, boosting the efficiency of financial markets and maintaining financial security.

China's capital markets are gradually developing in line with progress in the reform of the economic system. Due to incompatibility between various aspects of reform and limitations in the system design in the initial period of establishment, some deep-seated problems and structural contradictions still exist in the capital markets, which restrict the effective development of market functions. Such problems are encountered in the development of capital markets and will only be solved gradually in the process of development. The strategic goal of fully establishing a "moderately well-off society" was presented at the 16th National Congress of the Communist Party. At the third plenum of the 16th Central Committee of the Communist Party of China the Central Committee of the Communist Party of China, Several Issues Concerning Perfection of the Socialist Market Economic Structure Decision was adopted and plans made for the development of the capital markets, pointing the direction for the reform, opening up and stable development of China's capital markets. The situation shall be clearly studied, opportunities shall be grasped and concepts altered to vigorously develop the capital markets, increase the ratio of direct financing, create and cultivate a favourable investment environment, give full play to the functions of the capital markets such as promoting capital formation, optimizing the allocation of resources, advancing economic restructuring and improving corporate governance structures that make new contributions to the sustained, rapid, coordinated and healthy development of the national economy and full establishment of a "moderately well-off society".

2. Guiding ideas and tasks for promoting the reform, opening up and stable development of the capital markets

The guiding ideas for promoting the reform, opening up and stable development of the capital markets are: guided by Deng Xiaoping's theories and the important ideas of the "Three Represents," to fully carry out the spirit of the 16th National Congress of the Communist Party of China and the third plenum of the 16th Central Committee of the Communist Party of China; follow the principles of "openness, fairness and impartiality" and the policies of "legal system, regulation, self-discipline and standards", persevere with serving the national economy as a whole and achieving development in tandem with the national economy; persevere with regulating the market in accordance with the law and protecting the lawful rights and interests of investors, particularly public investors; persevere with the market orientation of the reform of the capital markets; give full play to the functions of market mechanisms; persevere with harmonizing the degree of reform, the pace of development and the resiliency of the market; properly handle the relationship between reform, development and stability; persevere with adopting measures for development to solve the problems encountered in the course of progress; properly handle the relationship between accelerating capital market development and preventing market risks; and persevere with proceeding gradually in an orderly way and constantly raising the level of opening up to the outside.

The tasks of promoting reform, opening up and stable development of the capital markets are: to build capital markets that are transparent, highly efficient and have a rational structure, sound mechanisms, complete functions and secure operations with the aim of expanding direct financing, improving the modern market systems, and giving greater play to the basic functions of the market in allocation of resources. It is necessary to focus on this aim to establish a capital market system that is beneficial to fund raising for all types of enterprises, satisfies many kinds of investment requirements and is fully efficient; improve a market-led product innovation mechanism, and form a capital market product structure addressing both price discovery and risk management as well as coordinating share financing and bond financing; cultivate listed companies and market intermediary groups that are honest and credible, operate in compliance with regulations and have sound governance mechanisms to strengthen the mechanisms for market entity restraints and for screening out poorly performing companies; and improve the market regulatory systems by having clear and definite duties, effective risk controls and coordinated placements to conscientiously protect the lawful rights and interests of investors.

3. Further improving related policies and promoting the stable development of the capital markets

The stable development of the capital markets requires guidance and support from corresponding policies. Each department shall further improve relevant policies to build a sound environment for the stable development of the capital markets.

Improve the verification system for the issuance and listing of securities. Improve the mechanism that allows all kinds of high-quality enterprises to equally utilize the capital markets and boosts the efficiency of resource allocation.

Attach importance to investment returns in the capital markets. Practical measures shall be taken to alter the situation that emphasizes listings while neglecting the importance of restructuring and that emphasizes fund raising while neglecting the importance of returns on investment of some listed companies, to raise the overall quality of listed companies and provide investors with opportunities for sharing economic growth achievements and increasing wealth.

Encourage funds that comply with regulations to enter the market. Continue to vigorously develop securities investment funds. Support the direct investment of insurance funds in the capital markets in various ways and gradually increase the proportion of funds being invested in the capital markets such as social security funds, enterprise supplementary pension funds and commercial insurance funds. It is necessary to cultivate a group of credible, law-abiding, professional institutional investors, thus making institutional investors, which are mainly fund management companies and insurance companies, a leading force in the capital markets.

Expand financing channels for securities companies. Continue to support public share or bond offerings by qualified securities companies to raise long-term funds. Improve the measures for managing pledged loans of, and entry into the interbank market by, securities companies, formulate examination and verification standards for the merger and acquisition of securities companies and securities distribution business loans and, subject to a sound risk control mechanism, create favourable conditions for securities companies to use loan or financing funds. Gradually launch pilot projects for financing fund management companies.

Actively and properly solve the issue of separation of equity ownership and power. Regulate the transfer of non-tradable shares of listed companies and prevent the draining away of state-owned assets. Gradually solve the problem of trading the shares of current listed companies that cannot be listed and traded. When solving this problem, the law of the markets shall be respected, the stability and development of the markets shall be benefited and investors shall be conscientiously protected, particularly the rights and interests of public investors.

Improve the taxation policies for capital markets. Discuss and formulate taxation policies to encourage investment from the public, improve the administrative procedures for the levy and collection of turnover taxes and income tax from securities and futures companies, and centralize the levy and administration of income tax in respect of qualified securities and futures companies.

4. Improving the capital market system and creating an abundance of securities investment products

Establish a multi-layer stock market system. On the basis of giving overall consideration to the rational and functional arrangement of capital markets, gradually establish a multi-level capital market system that meets the financing requirements of different types of enterprises, discuss and put forward the relevant conditions for issuing and listing securities and establish an auxiliary mechanism for selecting companies. Continue to regulate and develop the main board markets and gradually improve the structure for listed companies on the main board markets. Gradually advance the establishment of a growth enterprise market, improve venture-capital investment mechanisms and expand the financing channels for small- and medium-sized enterprises. Actively explore and improve a centrally regulated equity assignment system.

Actively and properly develop the bond markets. On the basis of strictly controlling risks, encourage qualified enterprises to raise funds by issuing corporate bonds, change the relatively sluggish state of development of bond financing, create an abundance of bond market products and promote the coordinated development of capital markets. Formulate and improve rules on the issuance, trading, information disclosure, credit rating, etc. of corporate bonds, and establish and improve debt payment security mechanisms such as asset mortgages and credit guarantees. Gradually establish centrally regulated and integrated bond markets.

Gradually develop the futures markets. Subject to strict control of risks, gradually introduce a variety of commodity futures that provide price discovery and hedging functions for bulk commodity producers and consumers.

Establish an innovative mechanism for market-led types of products. Research into and develop new types of products and their derivative products related to shares and bonds. Enhance the development of relatively low-risk fixed income-type securities products and provide a variety of securities investment products for investors that can form effective substitutes for ordinary savings. Actively explore and develop a variety of asset securitization products.

5. Further raising the quality of listed companies and promoting the regulated operations of listed companies

Raise the quality of listed companies. The quality of listed companies is the source of value of investments in securities markets. Directors and senior managers of listed companies shall, as a starting point and a focal point of their work, maximize shareholders' profits and constantly increase profit levels. We shall further improve the share offering administrative system, implement a sponsorship system for securities offerings and listings and support offerings and listings of competitively strong companies with standardized operations and good beneficial results, boosting the quality of listed companies from the source. Encourage listed companies to carry out mergers, acquisitions and restructurings that are market led and benefit the sustained development of the company. Further improve refinancing policies and support the use of the capital markets by high quality listed companies to accelerate their development and make them outstanding and strong.

Regulate the operation of listed companies. Improve the legal person governance structure of listed companies and, based on the requirements of a modern enterprise system, truly form a check and balance mechanism between the body with authority, decision-making body, supervisory body and business managers. Strengthen the good faith responsibilities of directors and senior managers and further improve the independent directors' system. Regulate the activities of controlling shareholders and pursue the liability of controlling shareholders that harm a listed company and the rights and interests of small- and medium-sized shareholders. Consolidate the responsibilities of listed companies and other parties who have information disclosure obligations and conscientiously ensure the truthfulness, accuracy, completeness and timeliness of information disclosures. Establish or improve the incentive and restraint mechanisms for senior managers of listed companies.

Improve market withdrawal mechanisms. Take effective measures to integrate the establishment of a multi-level market system and further improve market withdrawal mechanisms. At the same time as implementing the screening out of poorly performing listed companies, establish a mechanism for pursuing the liability of senior managers of listed companies who neglect their duties, and conscientiously protect the lawful rights and interests of investors.

6. Promoting the regulated development and raising the professional standards of intermediary service institutions in the capital markets

Build securities and futures companies into competitive and modern financial enterprises. On the basis of the principle of prudential regulation, improve the market access system for securities and futures companies. Urge securities and futures companies to improve their governance structures, regulate their shareholders' activities and strengthen the good faith responsibilities of the board of directors and management. Reform the system for managing transaction settlement funds of securities and futures' customers and research into and improve the deposit management mechanism for the transaction settlement funds of customers. Strictly prohibit the misappropriation of customers' assets and conscientiously safeguard the lawful rights and interests of investors. Securities and futures companies shall improve their internal control mechanisms and strengthen the centralized, integrated management of their branches. Improve the risk regulatory index system focused on net capital and urge securities and futures companies to implement robust financial policies. Encourage securities and futures companies to become outstanding and strong through mergers, restructuring and optimizing integration. Establish and improve a mechanism for securities and futures companies to withdraw from the market.

Strengthen administration over other intermediary service institutions. Regulate the development of securities and futures investment consultancies and securities credit rating agencies, strengthen administration over accounting firms, law firms and asset valuation institutions and raise the level of professional services provided by intermediary institutions.

7. Strengthening the legal system, establishing good faith and raising the level of regulation of the capital markets

Improve the system of laws and regulations for capital markets and strengthen the establishment of good faith. In accordance with the overall deployment of the vigorous development of the capital markets, improve the system of laws and regulations that is beneficial to the stable development of the capital markets and the protection of investors' rights and interests. We shall sort out administrative laws and regulations, local laws and regulations, department rules and policy documents that hinder the development of the markets to establish a sound legal environment for the vigorous development of the capital markets. In accordance with the requirements for improving a sound modern market economy social credit system, a good faith code for the capital markets shall be formulated, the practice of good faith shall be maintained, and measures for prohibiting entry to the market by institutions or individuals that seriously violate laws and regulations and seriously breach good faith shall be resolutely implemented.

Promote administration in accordance with the law and strengthen regulation of the capital markets. Raise the personal quality and law enforcement level of law enforcement officials in accordance with the deepening reform of the administrative examination and approval system and implementation of the requirements of the Administrative Licensing Law. Establish up-to-date regulatory ideas, establish and improve regulatory methods commensurate with the stage of development of the capital markets, improve regulatory measures and boost regulatory efficiency. Further strengthen regulatory force, integrate regulatory resources and cultivate a regulatory team that has fine political and professional qualities. By implementing effective market regulation, work hard to increase fairness, transparency and efficiency in the markets, reduce market system risks and guarantee the lawful rights and interests of market participants.

Develop the functions of industry self-regulation and supervision by public opinion. We shall develop the self-regulation and management functions of stock and futures exchanges, registration and settlement companies, and industry associations such as for securities and futures, lawyers, accountants, asset valuation, etc. We shall guide and strengthen the publicity and supervision of the securities and futures markets by the news media.

8. Strengthening coordination, and guarding against and mitigating market risks

Build a favourable environment for developing the capital markets. The risk guards for the capital markets are important to the country's financial security and the healthy development of the national economy. Each region and department shall be concerned with and support the development of the capital markets in compliance with regulations, and when issuing policies and measures involving the capital markets, full consideration shall be given to the sensitivities, complexities and uniqueness of the capital markets. Mechanisms for coordinating information sharing, convenient and quick communication, and clarification of duties shall be established and a favourable environment and conditions for the stable development of the markets shall be created.

Jointly guard against and mitigate market risks. Each region and department shall conscientiously perform the duties set out in the relevant laws and regulations such as the Company Law and adopt effective measures to prevent and rectify in a timely manner activities of false capital contributions by promoters or embezzlement of a listed company's assets by a major shareholder or actual controlling party. Each region and the relevant competent departments shall strengthen, in accordance with the law, the administration of companies that withdraw from the market and ensure that the market withdrawal is smooth. In the case of securities and futures companies with significant business risks that must withdraw from the capital markets or against which other administrative measures must be taken, local people's governments, financial regulatory departments as well as public security, judicial and other departments must strengthen coordination and, in accordance with laws, regulations and relevant policies, adopt active and effective measures to properly handle risks. Each region and department must establish a rapid response mechanism for sudden incidents and effective long-term mechanisms for guarding against and mitigating risks in capital markets.

Severely crack down on illegal activities in the securities and futures markets. Each region shall carry out the spirit of the State Council related to rectification and regulation of market economic order. They shall strictly prohibit illegal securities issues, illegal establishment of securities and futures business institutions, illegal trading of securities or futures as an agent, illegal or covert establishment of securities or futures exchanges and other illegal activities in respect of securities or futures in their area. Government departments including the finance, public security, auditing, industry and commerce departments and the state-owned assets supervision and administration authorities shall strengthen coordination, carry out further crackdowns and maintain order in the capital markets.

9. Conscientiously summarizing experiences and actively and gradually promoting opening to the outside

Strictly perform China's World Trade Organization entry commitments relating to opening the securities service industry to the outside. Encourage qualified overseas securities institutions to take an equity participation in securities companies and fund management companies and continue to implement the system of qualified foreign institutional investors on a trial basis.

Actively utilize overseas capital markets. Adhere to the law of the market and international practice and support qualified domestic enterprises to offer securities and list outside China. Support qualified domestic institutions and personnel to engage in service businesses related to capital market investments and futures hedging businesses outside China. Conscientiously research a system for qualified domestic institutional investors.

Strengthen exchange and cooperation. Implement the closer economic partnership arrangements with Hong Kong and Macao. Further strengthen contacts and cooperation with relevant international organizations and overseas securities regulatory bodies.

The vigorous development of the capital markets is an important policy made by the Central Committee of the Communist Party of China and the State Council that starts with the overall situation and strategy. Each region and department must pay great attention to it, establish a concept concerning the overall situation, fully recognize the importance of developing the capital markets, strengthen confidence, grasp the opportunities, develop new ideas, jointly create the conditions for the development of the capital markets, actively promote the reform, opening up and stable development of the capital markets, and contribute to achieving the grand aim of fully establishing a "moderately well-off society".

Translated by A. Allen and Associates Ltd.