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The Research Center of the China Securities Regulatory Commission (the CSRC) hosted the Seminar on “the Capital Market and the State Strategy of Autonomous Innovation” yesterday in Wulumuqi, Xin Jiang Province. Mr. Fan Fuchun, vice chairman of the CSRC, suggested at the seminar that there is no shirking the responsibilities for the capital market to serve the state strategy of constructing an innovative nation. It is one of the major urgent tasks upon the capital market to establish a growth enterprise market (GEM) that will satisfy the market requirements and match the specific circumstances of China to serve the state strategy of constructing an innovative nation.
The CSRC Research Center set up a special Task Force in April 2006 to conduct research on the subject of how the capital market may serve the state strategy of constructing an autonomous nation. The Task Force consists of professionals from departments of the CSRC, Securities Regulatory Bureaus of the CSRC, and Government Ministries and Commissions. Through discussions, on-site surveys and investigations in provinces and autonomous regions including Shanxi, Anhui, Guangdong, Xinjiang, etc., the Task Force formulated a series of research reports and policy proposals. The Seminar represents a periodical conclusion on the research subject of the Task Force.
Speakers at the Seminar included Song Airong, the standing member of CPC Xinjiang regional committee and the vice chairman of the Government of Xinjiang Uygur Autonomous Region., Zheng Lixin, vice director of Policy Research Office of the CPC Central Committee, Liu Shiyu, vice president of the People’s Bank of China, Chen Dongzheng, chairman of the Shenzhen Stock Exchange, Cao Wenlian, vice director-general of the Department of Fiscal and Financial Affairs of National Development and Reform Commission, Zheng Zhijie, investment president of the China Construction Bank, Zhu Congjiu, general manager of the Shanghai Stock Exchange, Zhang Yujin, general manager of the Shenzhen Stock Exchange, Li Zenglai, vice director of Department of Science & Technology of Xinjiang Uygur Autonomous Region on behalf of Mr. Zhang Jingan, president of the Science & Technology Daily. Delegates from relevant departments and regional offices of the CSRC, Shenzhen Stock Exchange, Shanghai Stock Exchange, Securities Association of China, Investor Protection Fund, CITIC Securities Co., Ltd., China Galaxy Securities Co., Ltd, Hong Yuan Securities Co., Ltd., etc. also attended the Seminar.
Vice Chairman Fan Fuchun asserted that China is now standing at a gateway in its economic and social development. Promotion of autonomous innovation competence is the leading forces behind the effective and rapid economic structural transformation and economic growth of China, and the fundamental means to improve China’s international competitive strength. The transformation from “Made in China” to “Created in China” hinges on continuous improvement in autonomous innovation competence.
Vice Chairman Fan Fuchun pointed out that, “There is no shirking the responsibilities for the capital market to serve the state strategy of construction of innovative nation.” He further suggested that the capital market shall become an important platform for autonomous innovation through fostering and enhancing growth of innovative enterprises that are the major carrier for the state strategy of innovative nation. Therefore, earnest promotion of capital market development will lay the shortcut for China’s economy towards an innovative economy.
Vice Chairman Fan Fuchun said that the establishment of Small and Medium Enterprise Market (SME) has expanded the direct financing source for small and medium enterprises that possess advanced technology, strong innovative competence, and prominent principal operations, which signifies the first significant step towards the target of optimized combination of technology and capital. However, we shall be aware of the absence of a multi-level capital market that may effectively accommodate the development of enterprises in difference phase of life cycle, and the deficient development in venture capital industry, especially native venture capital investment and private equity investment. Growth of Many enterprises with technological innovative competence and high growth potential have consequently been obstructed severely by the bottleneck of lack of funding. Therefore, there is no shirking the responsibilities for the capital market to develop a multi-level structure and facilitate the development of China’s high technology industries and an economic system characterized by autonomous innovation.
With respect to promotion of the state strategy of construction of an innovative nation, it is one of the important tasks upon the capital market to establish and present a growth enterprise market (GEM) that will satisfy the needs of the market and fit the circumstances of China.
Comparing with the growth enterprise markets in other countries, Mr. Fan Fuchun noted that special attention shall be paid to the following issues in establishing China’s growth enterprise market:
Firstly, a more liberal manner shall be adopted in designing the institutional structure and a dialectical outlook and prudent approach in balancing the trade-off between the listing standards and risk control. The GEM shall be designed and constructed to provide fund-raising opportunities for innovative enterprises with great growth potential. Therefore, the threshold criteria with regard to size and profitability shall be lowered reasonably so that the listing rules for different types of growth enterprises become commensurate with the characteristics of the enterprises in different life cycle, and with different natures. While making the GEM attractive to growth enterprises, risk control mechanism shall be build into GEM to prevent systemic market risks and the spreading of destructive damage to the society as a whole.
Secondly, market intermediaries shall be fully motivated according to the national condition of China. The characteristics of the innovative enterprises in early stage of life cycle dictate that great risks and uncertainty may arise with the construction of a GEM. In absence of an over the counter (OTC) market in China, innovative mechanism shall be adopted to motivate the enthusiasm of the underwriter, sponsor as well as other market intermediaries to find more growth enterprises candidates fit for listing on the GEM. To enhance the construction of the GEM, we must create a “soft environment” that is conducive to the development of GEM, and focus on innovation in institutional structure and mechanism. We shall endeavor to educate market participant the sense of good faith and legal compliance to lay firm foundation for the development of the GEM.
Thirdly, extensive and insightful promotional program and investor education works shall be conducted in brilliant and lively forms so as to enhance the understanding of the public for the role of the GEM, and gain more support and understanding rather than criticism and reproach in the course of developing the GEM. Efforts must be taken to foster sophisticated investment philosophy and increase the awareness of major market participants for investment risk. The market organizer and supervisor shall promote keenly the idea of “caveat emptor” to ensure investors exercise care in managing the risk arising from investment in the GEM.
Fourthly, the GEM development scheme shall be developed in light of the circumstances of China, and shall be judged by whether it will promote the development of innovative enterprises and implementation of the state strategy of innovative nation. Moreover, the scheme must take into consideration the implication for China of the successful experience or failure of the international markets through in-depth international research and analysis.
Fifthly, we must build the market in an open manner, motivating all positive forces, pooling the wisdom and efforts of the whole society to ensure a smooth development of the GEM. We must also take initiatives to seek support from relevant departments to build the GEM into an important platform for implementation of the state strategy of innovative nation.
Mr. Zheng Lixin, vice director of Research Office of Policy of the Central Committee of the Communist Party of China, stated that it is significant for China’s economic development, especially for the construction of an innovative nation to discuss how to utilize the mechanism of the capital market to enhance the implementation of autonomous innovation strategy. He suggested that, construction of an innovative nation requires development of venture capital investment funds that are supported by the GEM. Mr. Zheng suggested that the time for China to launch the GEM has come. He emphasized that construction of the GEM shall follow the standard practice of the developed international capital market, and that the mechanisms for review of the listing of enterprises, delisting, operating of the market, and transparency of information shall observe the nature of the market.
Mr.Liu Shiyu, vice president of the People's Bank of China，stated that, to achieve rapid transformation towards innovative economy, the role of the capital market must be given full attention. The lack of a multi-level capital market has been demonstrated by a flat structure of the market, monotonous financial products, and deficient institutional arrangements for market supervision. Such a capital market can barely satisfy the need to construct an innovative nation and boost autonomous innovation competence, especially the need of the innovative enterprises for funding. Therefore, it is essential at present to develop both a multi-level capital and more investment vehicles. Mr. Liu Shiyu suggested that there are 3 high-priority works at present, i.e. first, implementation of the GEM in the stock exchange; second, deregulation and development of a variety of fixed income securities; third, promotion of private equity investment funds.
Mr. Chen Dongzheng, chairman of the Shenzhen Stock Exchange, remarked that, when the opportunity comes for the standard development of the capital market, the GEM shall be launched as soon as possible to establish a fundamental structure of multi-level capital market, and craft reliable platform for effective implementation of the state strategy of construction of autonomous innovative nation. Mr. Cheng noted that the launching of the GEM shall be conducted in a prudent and feasible way. Rather than pursuing sensational effect, implementation of the GEM shall produce demonstrative and guiding effects, focusing on vitalizing enterprises in growth industries that have real growth potential, advanced technology and attribute of new-economy through the capital market.
Mr. Zhang Yujun, the general manager of the Shenzhen Stock Exchange, stated that the key to promote the construction of a multi-level market lies in institutional design and accurate positioning of the role of the market. Mr. Zhang asserted that construction of the Small and Medium Enterprise Market (SME) must be speeded up to become an important platform for boosting autonomous innovative activities. He alleged that the Shenzhen Stock Exchange would exert strenuous efforts in making sufficient preparation for the introduction of the GEM so that the GEM would be more clearly defined in its functions and roles, be equipped with the capabilities to provide more high-quality services, enable standard operation of enterprises, and that the capital market will be open to those enterprises with high growth potential and innovative strength.
Mr. Zhu Congjiu, General Manager of Shanghai Stock Exchange, proposed that the best mode to support an innovative economy would be the combination of the Over-the-Counter (OTC) Market and the Growth Enterprise Market. Mr. Zhu held that development of the Main Board, the SME Board and trading in other financial products were all severely bottlenecked by an underdeveloped OTC Market. Therefore, he suggests, that more efforts should be made to encourage the development of intermediary agencies and the OTC Market, so as to cultivate sufficient candidate companies for listing on the GEM.
Mr. Li Zenglai, Deputy Director-General of the Science & Technology Department of Xinjiang Uygur Autonomous Region, also gave a speech on behalf of Mr. Zhang Jing’an, the CPC committee members of the Ministry of Science and Technology and President of the Science & Technology Daily. Mr. Li Zhenglai suggested that inadequacy in capital has created a bottleneck for development of innovation-oriented enterprises. To solve this problem, an urgent task would be to set up a Growth Enterprise Board and launch it on a trial basis as soon as possible. Furthermore, trial on the Third Board (i.e. Agency Transfer System) should also be strengthened to improve the Agency Share Transfer System, so as to make them an incubator for the Growth Enterprise Board.
All delegates attending the Seminar joined in the heated discussions on the meeting topic, and agreed unanimously that the key to promote the construction of a multi-level market lies in institutional design and accurate positioning of the role of the market. Under the current circumstances, efforts should mainly be spent in promoting the construction of a Growth Enterprise Market, developing native private equity investment and encouraging securities companies to carry out direct equity investment.
The China Securities Regulatory Commission
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.) |
