The Shanghai Stock Exchange (SSE) says that the “Some Opinions of the State Council on Further Propelling Sound Growth of the Capital Market” (the “9 New Opinions” for short), which conforms to national conditions and meets masses’ needs, is a kind of scientific understanding on the rule of building China’s capital market in the new era, and a guideline for the further reform and sound growth of the capital market in the future. The “9 New Opinions” provides a historic opportunity for the market growth.
After the promulgation of the “9 New Opinions”, a journalist of the “Shanghai Securities News” promptly interviews with the SSE by phone call. An official of the SSE says that the SSE is willing to share some insights, though it preliminarily studies the “9 New Opinions”.
Gui Minjie, SSE Party Chief and Governor, says that the promulgation of the “9 New Opinions” gives a historic opportunity for the reform and development of the SSE market. After 10 years, the CPC Central Committee and the State Council put forward a strategic deployment on the reform and development of the capital market again, which not only marked their high attention to the work of the capital market and their supports for it, but also fully responded to the concerns of the people. The “9 New Opinions”, timely promulgated according to national conditions and masses’ needs, inherits the important requirements for boosting the sound growth of the capital market put forward at the 18th CPC National Congress, and the 2nd Plenary Session and 3rd Plenary Session of the 18th CPC Central Committee, shows clear orientation to reform and intensive market awareness, and contributes to giving away dividends of reforms, encouraging innovative development, and stimulating the market; upon surveys and studies on strategic issues that may propel the sound growth of the capital market, the “9 New Opinions” cements the top-level design, makes clear, reasonable, and practical systems, contributes to rationalizing the external environment, consolidating the market fundamentals, and maintaining the market stability, and fuels the real economy; the “9 New Opinions”, a guideline for the further reform and sound growth of the capital market in the future, is of great significance and profoundness as it puts forward a major task (also a general requirement) that a multi-tiered capital market, characterized by rational structure, complete functions, standardization and transparency, stability and hi-efficiency, as well as openness and diversity, will be completed on the whole by 2020.
Gui stresses that all measures mentioned in the “9 New Opinions” almost reflect the claims of market participants over past years. More than a document for every circle to do well in their work items, the “9 New Opinions” is a work guideline and a proclamation for clustering all consensuses and resources, elevating the market confidence, and stabilizing the market prediction as processes of its formulation and promulgation is the active, in-depth, and effective processes in which decision-makers and the public communicate, thoughts and wits are mobilized, and awareness and recognition are integrated as well.
He says that the “9 New Opinions”, in light of the economic and social development, gives a general deployment on the reform and development of the capital market in aspects of the stock market, the bond market, private placement, futures, industries, opening-up, risk control, and environment building. It meets a new round of reform and opening-up, and boasts its practical significance. While reviewing the promulgation and implementation of the “9 Opinions” in 2004, we find that an array of policies and measures, represented by the policy for solving the problem of equity division, exerted profound significance on the reform and development of the market later. Thus, we should further understand the practical significance of the “9 New Opinions” apart from seeing its strategic aspects.
Gui says that the SSE Party Committee will organize all the Party members and cadres as well as its staff members to learn and implement the “9 New Opinions”, and a news conference will be held to report further understanding of the document to the market and the public.
Huang Hongyuan, Deputy Party Chief and President of the SSE, says that the reform and development of the SSE market has a promising future with great challenges according to the strategic deployments and requirements mentioned in the “9 New Opinions”.
“The ‘9 New Opinions’ specifies that the leading role of securities-exchange-based markets should be cemented, which provides a historic opportunity for the growth of the SSE market in many aspects”, says Huang.
For instance, the requirement for increasing internal levels of securities-exchange-based markets contributes to speeding up the building of the SSE board for strategic emerging industries and providing more attractive investment targets for investors. The requirement for gradually perfecting stock option products mentioned in the “9 New Opinions” is conducive for the SSE to rationalize the whole-product-line construction (including spots and derivatives) and further narrow the gaps between SSE and globally-leading securities exchanges. The “9 New Opinions” puts forward a series of strategic deployments on the market’s opening-up, which contributes to boosting the preparatory work of the pilot business of the Shanghai-Hong Kong Stock Exchanges Connectivity Mechanism. Furthermore, the SSE plans to participate in the construction of the Shanghai Free Trade Zone (SFTZ) through the SFTZ Private Placement Trading Platform. Finally, the “9 New Opinions” requires to propel the interflow of the bond markets, which contributes to the SSE bond market’s continuous market expansion on the basis of risk control.
Huang specially mentions that the two research reports he recently read highly meet the requirements in the “9 New Opinions”, and give him full confidence in the steady and sound growth of the capital market in the future. One report involves that long-term funds enter the capital market. According to relevant calculation, there exist many blue chips featuring continuous distribution of high dividends currently, and they can produce absolute return (relatively safe, with annualized rate of return up to 5%) if appropriate value investing strategies are given, which means that good market fundamentals have been built for the capital market to usher in long-term funds. As the “9 New Opinions” tells a lot about the market-entry of long-term funds, it is predicted that if a standard for blue chips featuring distribution of high dividends is set up according to relevant research result, long-term funds’ worries about entering the capital market will be removed, the core of market valuation will be stabilized, a mutual incentive mechanism for investment and financing will be established, and thus small and medium-sized investors will continuously share fruits resulted from the economic growth.
Another report involves incentive to company executives and management on market capitalization. The report designs a scheme of dynamically issuing out-of-the-money options to listed companies’ executives to replace part of bonuses. In order to exert a long-term incentive influence, the scheme introduces exercise in batches and adds the lock-up period of sale. According to data analysis, the scheme can fully encourage executives, and simultaneously give consideration to interests of executives, companies, and small and medium-sized investors; it also can urge executives to continuously pay attention to stock prices and effectively manage market capitalization, and attach more importance to companies’ value creation, stock prices’ increase, and companies’ long-term development, instead of neglecting interests of small and medium-sized investors reflected by stock prices.
Huang Hongyuan stresses that, as a middle and long-term deployment, the promulgation of the “9 New Opinions” is a significant policy designed according to the overall situation and the strategic perspective. This means that, few of relevant work goals could be achieved overnight and effects of the policy could only emerge progressively. For this reason, the SSE must rely on its confidence, determination, tenacity, and rationality, which are also expected from the market and the society, to implement the requirements in the “9 New Opinions” and promote the reform and development of the SSE market.