Reforms will strengthen stock market

Given the recent fluctuations in China's stock market, the central bank and the banking and insurance regulatory authorities have taken several measures to boost market confidence. In fact, Vice-Premier Liu He addressed the media answering questions on several important economic and financial issues. Besides, the implementation of a series of favorable policies shows the Chinese governments' concern for and support to private enterprises, as well as its confidence in the stock market, which has acted like a tonic for the sluggish market.

Liu He said the Chinese economy would be stable and keep improving. On the financial front, monetary policy is prudent, financial structural deleveraging is progressing steadily, financial organizations' blind expansion is cooling down, and investments are becoming more rational.

According to National Bureau of Statistics' data, China's GDP grew 6.5 percent in the third quarter of this year, and national economic operations have remained within a reasonable range in the first three quarters, which are conducive to achieving the whole year's economic goals. Actually, the entire year's new urban employment goal was achieved in the first three quarters－as total employment exceeded 11 million.

Responding to the recent stock market crash, Yi Gang, governor of the People's Bank of China (the central bank), and Guo Shuqing, head of China Banking and Insurance Regulatory Commission, both said it represents investors' expectations and sentiments.

China's present stock market valuation is at a record low, which is not compatible with the economic fundamentals and the overall stable situation of the country's financial system.

He said the fluctuations in and crash of the stock market are due to many internal and external factors, while stressing that China is becoming the world's most valuable market for investment thanks to the improvement in the quality of its listed companies.

To promote the healthy and stable development of China's stock market, therefore, the central bank and the central regulatory departments have launched new reforms recently.

First, the aim of the reforms is to stabilize the market, by allowing subsidiary bank financing companies to invest in the capital market, and requiring financial institutions to properly deal with the risks associated with the stock pledge financing business.

Second, the central authorities' move will help improve listed companies' share repurchase system, facilitate the marketization of acquisition and reorganization of companies, promote the reform of the National Equities Exchange and Quotations system, and boost the support for innovative technology enterprises going public.

Third, the reforms are expected to promote the investment of insurance capital in quality listed companies so as to strengthen market investment.

Fourth, the central authorities' move is aimed at promoting the reform of State-owned enterprises, supporting the mergers and reorganizations of leading private enterprises, and launching private enterprise bond financing support plan.

And fifth, the reforms are expected to expand opening-up in an all-round way, especially in the financial field.

No one doubts that the private economy plays an important role in the national economy. National Bureau of Statistics data show the accumulated growth rate of private investment has been above 8 percent－representing a strong growth trend－since the beginning of this year.

That's why Liu He said the assumption that "the State-owned economy advances while the private sector retreats" is baseless. The reorganization of some private companies that also have State capital share is nothing but State-owned enterprises helping private companies with high debts to overcome their difficulties. If anything, it shows the interdependency of and cooperation between the SOEs and private companies.

Moreover, the governor of People's Bank of China said the central bank will take more targeted measures to ease private enterprises' financing difficulties. And the chairman of China Securities Regulatory Commission said the commission will improve the system and technologies to help private enterprises develop.

On Oct 20, the special deduction plan for individual income tax was released. Two days later, the State Council, China's Cabinet, asked the authorities to take measures to further improve the business environment; it also decided to introduce private enterprise bond financing support tool to help private companies to access financing. And while the central bank has expanded the credit supply to small and micro-sized enterprises, as well as private enterprises, the CSRC has suggested in the draft Corporation Law that corporations' share in the repurchase system be further revised.

Which shows the series of reform and development measures launched recently is conducive to easing private companies' financing difficulties, strengthening the A-share market, boosting the confidence of the capital market and safeguarding market stability.

The author is a research fellow at the International Monetary Institute of Renmin University of China, and deputy general manger of fixed income department, Changjiang Securities.