High-quality development to boost capital market

Main reason

CICC managing director Li Qiusuo said most analysts believe that the slower-than-expected economic recovery in China was the main reason for the sluggish performance of the A-share market earlier this year. But it is probably also time to take a closer look at the quality of A-share companies, Li added.

Chasing Securities data show the top 10 Nasdaq companies contributed 44.23 percent to the index's growth from 2012 to last year, while in China, the comparable contribution of the 10 largest A-share companies was only 11.36 percent during the same period.

Statistics from market tracker Wind Info show that in terms of sales revenue for specific industries, finance, construction and energy based on fossil fuel continued to dominate the top three positions in the A-share market last year. Despite their rapid growth, emerging industries such as information technology and biomedicine still have a long way to go in annual turnover, thus exerting less influence on this market.

Regulators have stepped up their efforts. In late November, an action plan for 2022-25 aimed at improving the quality of China's public companies was released by the CSRC.The plan is designed to optimize the existing trading mechanism and rules, rectify problems significantly affecting listed companies' corporate governance, optimize the overall listing structure of public companies, and complete the long-term mechanism for cracking down on major violations.

In December, the Shanghai and Shenzhen stock exchanges introduced detailed plans to better carry out the CSRC's action plan.

At this year's Lujiazui Forum, the CSRC's Yi stressed that implementing the action plan will be one of the focuses. Efforts will also be made to improve the quality of public companies' information disclosure and strictly punish violations such as financial fraud. The aim is to improve A-share companies' governance, competitiveness, creativity, risk resilience and returns, he said.

At the Shanghai Stock Exchange, the STAR Market, which was launched four years ago, is positioned to nurture "hard technologies" such as biomedicine and chipmaking in an attempt to improve the quality of the A-share market, which will eventually boost high-quality economic growth with the help of the capital market.

Of the 534 companies listed on the STAR Market as of June 14, when it marked its fourth anniversary, 218 are new-generation information technology companies, 108 are biomedicine companies, while 88 are high-end equipment manufacturers.

Last year, STAR Market companies allocated an average of 16 percent of their annual sales revenue for research and development, while the comparable proportion for all A-share companies was 2.3 percent, Wind Info data show.

The emphasis on research and development has paid off. Wind Info statistics show that the average year-on-year sales revenue growth for STAR Market companies last year was 29.3 percent, compared with 7.2 percent for the A-share market. These technology-focused companies saw their net profit rise by 5.4 percent on average from a year earlier, while the average growth rate for such companies across the A-share market was just 0.8 percent.

Experts from Haitong Securities said the STAR Market is strategically important for China's industrial upgrading and transformation to high-quality economic growth. Innovation-driven companies will be the pillar of the nation's economic development, implying great investment value, the experts added.

The STAR Market's registration-based initial public offering, or IPO, mechanism is of great significance to the A-share market.

Yang Delong, chief economist at First Seafront Fund Management Co in Shenzhen, said that before the introduction of the mechanism, which was officially promoted throughout the A-share market in April, each IPO had to undergo CSRC revision before final approval was obtained. The process was time-consuming, and some companies went public via mergers and acquisitions or through buying so-called shell companies.

Some shell companies, already labeled "specially traded" stocks due to their sluggish performance, did not focus on their prime operations, Yang said. Instead, they hyped their profiles in the hope of attracting potential buyers. They could continue to exist as long as they were bought by companies intending to go public.