Vice Chairman JIANG Yang's Speech on Lujiazui Forum 2017

  Respected Secretary HAN Zheng,

  Governor ZHOU Xiaochuan and

  Mayor YING Yong,

  Distinguished guests,

  Ladies and gentlemen,

  Good morning!

  I am very glad to join the Lujiazui Forum today. First of all, my sincere congratulations on this important event, and, on behalf of the CSRC, I would like to express my gratitude to officials and friends for your long-standing support to the reform and development of China's capital markets.

  The global economy, while turning upbeat, is being hamstrung by instabilities and uncertainties. The spillovers of the economic policies in developed markets are causing disturbances to China and other emerging economies. Domestically, the economy is steered on a stable and sound track, despite structural imbalances and onerous task of financial risk control. In this regard, we are presented with new opportunities and multiple challenges in capital markets reforms. I'd like to share my thoughts echoing the theme of today's forum.

  First, persistently seek progress while maintaining stability, which is the keystone to state governance and the guiding principle to economic development. It is all the more relevant to capital markets reform and development, as China's capital markets are so extensive and closely tied into all aspects of the society. The 2015 stock market fluctuation jolted us to the importance of stability to the emerging and gear-shifting market, the absence of which would obstruct market reform and incapacitate the market for serving the real economy. Over the past year, we have taken serious lessons from the market rout. Stability is prioritized as the precondition to market restoration and growths. With concerted efforts, China's capital markets have been sound and stable with enhanced resilience to support economic development. As end of May 2017, there were 3,261 exchange-listed companies, over 11,000 NEEQ-admitted companies, and more than 18,000 companies on regional equity platforms. In the first five months this year, equity financing on SSE, SZSE, and NEEQ amounted to RMB 519.4 bn. Bond financing on exchange markets netted at RMB 680.8 bn. Futures market now operates tradings of well-structured product line, ranging from agricultural produce, metal, energy, chemical, to financial products, the prices of which provide important references for corporate risk management and macro-economic monitoring.

  However, the foundation for stability of China's capital markets are not intrinsically solid. Risk correlation between equity, bond, futures, and forex market is ever-increasing, so is the interplay between on-shore and off-shore markets. We must place financial risk control on top of our agenda with viselike grip on the key tone of seeking progress while maintaining stability. We must maintain strategically focused, remain steadfast to proven regulatory policies and practices, and stay responsive to changes in market conditions, so as to guard against drastic fluctuations and minimize systemic risks. In the meantime, to make concrete progress in developing the multi-tiered capital markets, buttressing the foundation for sustained sound and stable development.

  Second, firmly push forward reform of institutional framework. Over the past 20 years, we have made great progress in such reform based on our own circumstances while drawing essence from international practices. But in general, the underlying rules of our market are not sufficiently established. The flaws in certain areas impeded the market's sound development. The solution to uproot the inefficiencies relies on reform. Since last year, we have taken solid reform measures and have reaped anticipated results.

  For example, (1) administrative approval procedure for M&A and restructuring is significantly simplified to encourage industrial integration while the requirement and regulation on post-restructuring new offerings are tightened. The balanced reform measures efficiently facilitated resource allocation and lent strong support to SOE reform, industrial upgrading, and structural rebalance. In 2016, there were 2,486 deals of M&A and restructuring of listed companies with a total amount of RMB 2.39 tn. 90% of these deals were market-driven without requiring CSRC's approval. In the first 5 months of 2017, such transactions amounted to RMB 1.1 trillion, a YOY increase of 41%. (2) Refinancing rules are further revised and improved to meet regular financing demands and standardize fundraising activities through optimized financial instruments. Refinancing by listed companies in the first 5 months this year reached RMB 370.1 bn, much lower than that of last year. Convertible debt financing was RMB 31.1 bn, a surplus of RMB 9.8 bn over last year's total. (3) New regulations are released to rectify shareholding reduction by major shareholders or directors, supervisors, and executives of listed companies. The purpose is to ensure stable operation and the quality of listed companies, and protect the lawful rights and interests of small and medium investors in the long run. Since the regulations came to effect, shareholding reduction has shown alignment with expectation, and behaviors including clearance reduction, targeted reduction, and bridge reduction have been effectively curbed. (4) NEEQ classification reform is put in place to support SMEs. Right now innovation-driven companies take up 12% of listed companies, contributing 33% to total financing on NEEQ. In addition, we included regional equity platforms into the multi-tiered market in accordance with the State Council's directive to grow regional markets, which expanded channels for SMEs to participate in the capital markets.

  Capital markets are where diversified demands and interests join together. Reform of fundamental institutional framework requires balanced considerations, overall planning, and implementation in an incremental manner. To build a multi-tiered capital markets, we shall stay firm in the market-oriented, law-based, and global-facing direction, addressing key problems and constantly optimizing reform paths. Breakthroughs are needed in the reform of market entry and exit, balance of incentive and restrictions, as well as regulatory regime. We are fully aware that reform cannot be done overnight and only gets more difficult as it deepens. As for the CSRC, we hope to earn the understanding and support from the market, whereby pulling all forces together to realize sound market development.

  Third, steadily expand two-way opening-up of capital markets. Improved access to China's capital markets are an integral part of national opening-up strategy. For years, we have taken a holistic approach and made new strides encouraging both letting-in and going-global. Stock Connect between Mainland and Hong Kong exchanges were launched successively and have achieved smooth operations. There are 247 Chinese companies directly listed on foreign exchanges, raising a total of USD 318 bn. 15 foreign issuers accumulatively made 48 issuances of panda bond for RMB 85.9 bn. Under the auspice of "Belt and Road Initiative" (BRI), the capital markets have played a prominent role. Three Chinese exchanges successfully acquired part of Pakistan Exchange equity last year. Shanghai Stock Exchange (SSE) has just entered into an agreement with Kazakhstan authority regarding the incorporation of Astana International Exchange. Previously, SSE, CFFEX, and Deutsche Boerse Group set up the joint venture China Europe International Exchange (CEINEX) in Frankfurt. Currently, 963 Chinese listed companies participated in projects in the BRI, and 2 securities companies have set up subsidiary in BRI countries. 32 institutions from BRI countries were granted QFII and RQFII status.

  In the coming years, we will further two-way opening-up of China's capital markets based on mutual benefit and win-win cooperation, in ways of deepening market connect and cross-border cooperation, enriching eligible products, and preparing for Shanghai-London Connect. We will also improve QFII and RQFII regimes through which to bring in long-term investors to China's market, drive domestic exchanges to engage in practical and reciprocal cooperation with BRI countries, and encourage qualified companies in BRI countries to issue panda bond. Besides, we will reform overseas listing rules, push for the opening of crude oil tradings, and steadily open up commodities futures market, so as to continuously elevate the international status of China's capital markets.

  Fourth, firmly execute law-based, comprehensive, and rigorous market regulation. Since last year, the CSRC fine-tuned regulatory orientations and strengthened surveillance encompassing all parts of the market with power endowed by law. To curb speculation, efforts have been advanced to bring order to the market and to expand investment access. Regulations have been toughened to monitor hustling and crowding M&A and reckless cross-sectoral reorganization, which effectively curbed speculation on shell companies. To straighten up market order, the CSRC exercised powers endowed by the Securities Law and reinforced the frontline regulatory duties of the exchanges, who shall build a "member-driven" model to monitor trading activities. Consequentially, the exchanges are now playing bigger roles to improve quality of information disclosure by issuers, monitor irregular trading pattern, forage evidence of misconduct, among others. To upgrade regulatory infrastructure, the Commission made strides in constructing the Central Regulatory Information Platform and Central Market Intelligence System, which greatly pushed up regulatory efficiency and accuracy. On the front of enforcement, the Commission had initiated thematic campaigns against IPO fraud, misrepresentation, malpractice by intermediaries, and market manipulation. Last year has set historical records in number of cases processed and amount of fines and disgorgement. In the first five months of 2017, tickets issued amounted to RMB 6.1 bn, already higher than the total amount of 2016.

  Our past practice has proved that law-based, comprehensive, and rigorous market regulation can maintain market order and purify financial ecosystem, both of which are conducive to long-term sound and stable market development. The CSRC will not yield under pressure but continue to improve regulatory approaches. First, we will guide listed companies, securities and futures companies back to their basics and core businesses, putting tight cap on speculation and speculative funds that flow away from the real economy. Second, we will enhance the legal infrastructure by addressing acute problems, such as impotent penalties, insufficient empowerment, and inadequate deterrence. Third, under the coordinative mechanism of the Joint Ministerial Conference (the JMC) spearheaded by the PBoC, we will keep close communications with relevant authorities and coordinate on policy-making, and carefully manage the pace and strength of financial policies to avoid contradiction or confusion. Together hold the red line of containing systemic risks.

  Ladies and gentlemen, dear friends,

  Shanghai, with the reputation of "Oriental Pearl", enjoys rich cultural heritage and unique advantages to be an international financial hub. Shanghai, with years of efforts, has set up an all-encompassing national financial market covering stocks, bonds, futures, forex, gold, and insurance. The CSRC will continue to support Shanghai as an international financial center in its reform efforts, innovation drive, and opening-up process. We are confident that the city is going to make prominent progress and will have stronger influence around the world.

  I wish the Forum a great success. Thank you!



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