Chairman Liu Shiyu's Speech at the 2nd Assembly of CAPCO Members' Representatives

Good morning!

I'm delighted to attend the 2nd Assembly of Members' Representatives of China Association for Public Companies (CAPCO). On behalf of the China Securities Regulatory Commission (CSRC), I'd like to extend warm congratulations on the convening of this Assembly, high respect to the listed companies who are dedicated to their core businesses, resolute in innovation, caring for employees, and sharing with shareholders, and heartfelt thanks to friends from all sectors who have rendered great support to the reform and opening-up of the Chinese capital markets.

Listed companies are exemplars of outstanding Chinese firms and the backbone of China's economy. Today, there are over 3,100 companies listed on China's stock exchanges, with a total market capitalization of over RMB 50 trillion. According to incomplete statistics, non-financial listed companies, 0.8% of the total industrial enterprises above designated size (enterprises with annual sales of over RMB 5 million), account for 43.2% of total assets, 39.3% of net assets, and 27.6% of total profits. As China's economy develops and financial market deepens, the number of listed companies will grow with higher quality and broader influence. The directors, supervisors, and senior management of listed companies are all household names and respected entrepreneurs represented by who are here today. That's why the requirements for listed companies and their management shall be higher and stricter. I'd avail myself of today's Assembly to put forward my expectations and recommendations. Your comments would be welcome on any inappropriateness.

Firstly, to strengthen sense of mission. Listed companies are the cornerstone of capital markets, the driving force shaping market and leading the Chinese dream of national rejuvenation. Listed companies must live up to the expectations of shareholders and employees and undertake national and social responsibilities. Since the 18th CPC National Congress, the CPC Central Committee with Comrade Xi Jinping as the core has systematically put forward new concepts, new thinking, and new strategies for state governance, laying out strategic blue prints featured by coherent advancements of "overall development plan" and "four comprehensives". By recognizing the new normal in economic development, a new development idea has been formed with a keynote on stability whilst making progress, on innovation-driven strategy, and on supply-side structural reform. Initiatives, including poverty alleviation programs, the Belt and Road, Coordinated Development of Beijing-Tianjin-Hebei, and Yangtze River Economic Belt, have been implemented smoothly. The thrilling announcement of Xiong'an New Area swept the country with excitements and heated global discussions. Implementation of these policies and strategies poses invaluable opportunities and duties that can not be shirked by listed companies. More importantly, I'd like to call on all listed companies to abandon short-termism, concentrate on core business, uphold the spirits of craftsman and strive to be the bellwether of the industry, and to refrain from misusing capital markets to finance sideline business.

Secondly, to strengthen corporate governance. The level of corporate governance is one critical quality indicator of listed companies. With years of hard work, Chinese listed companies have improved corporate governance markedly. However, quite a number of companies are stagnating on formalities and ignoring substance, which demands the following efforts to treat the anomaly.

Enhancing corporate governance structure. There should be clear provisions for the rights, interests, and duties of directors, supervisors, and senior management, and CPC building should be accentuated in the listed companies. Unswervingly adhering to the CPC leadership is the most fundamental feature of socialism with Chinese characteristics. In state-owned listed companies, the CPC group or committee is both the  leadership and political core. In non-state-owned listed companies, the corporate charter shall pledge to provide necessary conditions for Party activities and protect the legal rights and interests of Party members, which in turn enhances supervision over Party members and Party organizations. This is inarguably the fundamental feature of the socialist market economy with Chinese characteristics. The Principle on Corporate Governance for Listed Companies, which is being revised, shall fully integrate these requirements.

Moreover, the shareholding structure of a listed company shall not be over complicate, nor shall the decision-making chain be excessively long. Otherwise, it leaves exploitable loopholes for insider trading, tunneling, and capital fleeing. Building on past experiences, the "shareholding for voting" pilot programs will be expanded nationally to protect legal rights and interests of small and medium investors.

Faithful, accurate, and complete information disclosure. Listed companies, as they are public companies, must improve transparency. Disclosure must address the needs of investors, and ensure fair and timely information access for all shareholders. Both controlling shareholders and actual controllers shall dutifully perform disclosure obligations, including maintaining an insider list and honor confidentiality requirements.

Thirdly, commitment to cash dividends. Paying cash dividends is the primary way to return wealth to investors, the underlying duty of a joint-stock corporation, and the source of a stock's intrinsic value. Investing in stocks is said to have eyes on the future. As long as a company has growth potentials, its stock price will rise and bring returns to its shareholders, regardless of paying dividends or not. This notion is only partially right. But the returns here are not profits generated by the issuing companies but gains from trading at premium. If a listed company never offers cash dividends, trading of its stocks is nothing but a speculative rolling game, the one like passing flowers until the drum beat stops, not to mention the uncertainties in a company's growth. A company who chooses not to pay dividends but to expand blindly by taking on new project may fail to pay in the future when these projects go south.

Listed companies are allowed to withhold dividend payments if it is for long-term considerations and with approval by the shareholders' meeting. However, indefinite and unjustified withholding is not acceptable. In international practices, steady and stable cash dividend payout often signals financial health and operational soundness of a listed company. In other words, sustained failure to pay dividends for no reason could be signals of accounting fraud or internal mismanagement. There are listed companies who generously pay out dividends. We commend the practice.  However, there are also "iron roosters" who haven't plucked a single feature for many years. The CSRC has been noted of this problem. We won't fail to ensure accountability and will respond with firm measures as warranted.

Fourthly, chastising market aberrations. I once compared listed companies to the pearls on a necklace. Pearls are symbols of brilliance. It is fair to say that the majority listed companies stand on good quality. Regretfully, there are inferiors and impostors at large, some of whom are to blame for market aberrations. Accounting fraud, fueling stock prices using high stock dividend or converting paid-in capital to common shares, as well as deceitful and bandwagon restructurings are chronic market ills. Some companies do not have market competitiveness nor viable business models, yet their major shareholders, directors, supervisors, and senior management make huge gains in collusion to pump stock prices and dump holdings by percentages above legal permits or even liquidating. Market jargon calls it "disgraceful table manners", causing untold sufferings to small and medium investors.

Capital markets operate by rules. There are regulatory red line and bottom line. The CSRC will steadfastly carry the sacred responsibility of investor protection, especially to small and medium investors. Tough measures will be taken to correct market aberrations, punishing the culpables, delisting the failing companies, and cleaning out the riffraff. Whoever breaks the rules will pay a heavy price.

Fifthly, a service-oriented and self-regulatory CAPCO. The CAPCO should draw the wisdom of all and cultivate the service platform to strengthen competitiveness of listed companies. The CAPCO shall strive to be the forerunner to implement national strategies and improve national competitiveness. In addition to maintaining market order, the CAPCO shall build up member self-regulation and play a managerial role also as a service provider. On this regard, the CAPCO can work closely with SHSE and SZSE to shove out concrete measures. Starting with concerted efforts setting up background files of the directors, supervisors, and senior management of listed companies. Such files shall cover their working experiences, personal matters, credit records, etc. to keep them accountable for their behaviors and hold them in awe of market. Next step is to create a "Honor Board" and a "Blacklist". The nomenclature "blacklist" is open to discussion. But the purpose is to rank companies in pecking order, acclaiming and motivating the law-abiding ones while tagging and punishing the ill-behaving ones. Trainings for directors, supervisors, and senior management of listed companies must be sustained to heighten awareness of self-regulation, compliance, and integrity, so that they can lead by example to respect laws, refrain from insider trading, and honor social responsibilities.

The CAPCO, in the past five years since establishment, has made tremendous efforts with laudable results in member service, self-regulation, executive trainings, and industry promotion. This Assembly will witness the formation of a new leadership, which is mandated to freshen up the market with new thinking, new accountability, and new achievements. The CSRC will support the CAPCO to act independently in accordance with laws and its Charter. Everyone shall join hands to build a better CAPCO and improve the quality of listed companies. As our tributes to the successful opening of the 19th CPC National Congress, we shall work side by side to promote steady and sound development of the capital markets and elevate economic competitiveness of the nation,

Thank you!

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