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CSRC Press Conference on Feb. 26
28-02-2017

  Hu Kaihong:

  Ladies and gentlemen, good morning. China's capital market has long been watched closely by many people. Today we are delighted to invite to our press conference Mr. Liu Shiyu, chairman of the China Securities Regulatory Commission (CSRC), and Mr. Li Chao, Mr. Fang Xinghai and Mr. Zhao Zhengping, the three vice chairmen of the CSRC. They will introduce to you the work done for the coordinated promotion of stability, reform and development in China's capital markets and answer your questions. Mr. Huang Wei and Mr. Xuan Changneng, assistant chairmen of the CSRC, are also here today. Now, please welcome Mr. Liu.

  Liu Shiyu:

  Good morning ladies, gentlemen, and friends from the media. First, I would like to welcome and thank everyone for coming to the press conference of the CSRC. The cameras pointing at me here manifest vividly the media's expectation of the reform and development of the Chinese capital markets. Your participation and reports will inject positive strength into the reform and development of the Chinese capital markets. The CSRC will also be more encouraged to roll up our sleeves and work harder for improved regulation.

  In the past year, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping as its core, the CSRC and its affiliated agencies continued to aim for the overall targets of stable growth, pushing forward reforms and structural adjustment while benefiting people's well-being and avoiding risks, as well as following the country's supply-side structural reform, carried out the various work relevant to reform and development in China's capital market. The work can be summarized in three adjectives: stable, strict, and progressing.

  The first word is "stable." Since I began my work at the CSRC, I felt that the market wanted stability more than anything else after the turbulences in the stock market during 2015. Our work in the last year was delivered on this goal.

  First, policy expectation was stable. We adhered to market-oriented, law-based and internationalized reforms, maintained consistency in our policies and continued with those policies and practices that were welcomed by and proved effective on the market. We also fully respected market rules, met market needs and concentrated on our direction of reform. Second, the market operation was stable last year. In 2016, with the support of investors, the Shanghai and Shenzhen stock markets witnessed fewer fluctuations. Investors grew more optimistic, the market was steadier and the various functions of the market were enhanced. Third, market reform was conducted steadily. We carried out problem-oriented reforms, addressed the various problems after the turbulent market with institutional reforms in an orderly and steady manner.

  The second word is "strict." In the past year, we regulated the market in a law-based, comprehensive, and strict manner. First, we have strict standards. Strict review standard for IPO aims to ensure the soundness of listed companies and avoid problems from the point of entry. Second, we have strict enforcement. In light of disorders in the capital markets, we drew our swords timely and resolutely. The leads were closely followed, cases promptly filed, and problems thoroughly investigated. Third, we have strict self-discipline. The CSRC has been committed to systemic, comprehensive, and strict Party discipline as a political streamline and conducting rectification work according to the feedback made by the CPC Central Commission for Discipline Inspection to enhance our consciousness of the need to maintain political integrity, think in big picture terms, uphold the leadership core and keep in alignment. We are also actively organizing workshops for Party studies to build the CSRC team into one with stronger sense of political mission, deeper confidence, and stricter self-discipline.

  The third word is "progressive." First, bolder reforms were pushed ahead. By upholding the general direction of reform, we managed to improve a series of fundamental institutions of capital market through problem-oriented reforms. The National Equities Exchange and Quotations (NEEQ) has divided its listed companies into different tiers. The legal status and operating rules of regional equity platforms have been clarified. The State Council has issued related guidelines in this respect. We have increased the efficiency of IPO for enterprises from impoverished counties without undermining the approval standards. We have made timely revision of relevant rules for major restructuring and refinancing of listed companies and made great efforts to improve the regulation on securities, fund management and futures firms. We have given full play to the Stock Exchange's regulatory functions at the frontline. We have innovated the means and mechanism for protecting investors' rights and interests. We have explored and set up a diversified mediation mechanism for securities disputes.

  Second, new efforts have been made to support the real economy. Last year, 280 enterprises' IPOs were approved and 248 enterprises completed their IPOs, raising more than 163 billion yuan. Here are more figures I'd like to share with you. The listed companies raised over 1.34 trillion yuan through secondary offering last year. Mergers and acquisitions of 261 enterprises were approved, increasing the capital strength of listed companies by over 980 billion yuan. Reporters may notice that the number of the companies listed on the NEEQ system doubled, exceeding 10,000 by the end of last year. They raised more than 139.1 billion yuan throughout the year. The bond market has made steady progress thanks to the coordination and support of relevant authorities. Net increase of the funds raised through corporate bonds exceeded 2.7 trillion yuan last year. These funds are gold and silver that has fueled the growth of the real economy.

  Third, new achievements have been made in two-way opening-up. The Shanghai-Hong Kong Stock Connect has been further improved. The Shenzhen-Hong Kong Stock Connect started operation. Securities institutions, as well as stock exchanges involved have made encouraging achievements in supporting the "Belt and Road" initiative. The CSRC created a closer relationship with international securities regulators in cross-border enforcement cooperation with further improved efficiency.

  Above is a brief overview of our work in the past year. We have circulated background materials with facts and figures for your reference.

  Now, my colleagues and I would like to take your questions.

  Hu Kaihong:

  Thanks Mr. Liu. Now, the floor is open for questions. Please identify your media outlet before raising questions.

  CCTV:

  In your opening remark, you underscored three keywords, among which, "stability" is one of the highlights. This is also a high-frequency word in your speech at the earlier CSRC Regulatory Work Conference. How should we interpret stability? How is the CSRC going to maintain stability? Will the Commission achieve it by slowing down and relinquishing reform?

  Liu Shiyu:

  Thanks for your question. I think you were asking, what we can do to handle and balance reform, development, and stability in the capital markets. Frankly, we have been looking for an answer to that ever since I joined the CSRC.

  There is an old Chinese saying that, "The tranquil watercourse is good for a voyage." The history of the capital market in China has more than once shown that without a stable market, reform can be difficult to advance or even retrogressive. We have learned it the hard way. If we are not firm in moving towards a market-oriented, law-based, and internationalized capital market, or in our problem-driven reform philosophy, we shall never reduce or eradicate the deep-rooted ills in the system, leaving the market dispirited on a teetering edge. Therefore, reform and stability are complementary to each other.

  I have just briefly introduced the work of the CSRC in the past year. My personal view on reform is that we shall take steps one by one and ensure we are on the correct path moving in the right direction. We can compare the capital market to a pearl necklace. It is the piece of jewelry some of the lady reporters are wearing today. There are several success factors for one to string a nice pearl necklace. First, high quality pearls with holes straight through the center. A skewed hole makes the bead a defect. Here, we look at the pearls as high quality listed companies. Second, a resilient line to string the pearls. The line width has to be constant, which should be the same for the consistency of reform and institutional framework. Third, stringing the pearls one by one. There is no magic to turn a handful of pearls into a necklace. Fourth, a clamshell tip to the loose end and a clasp and jump ring to complete the necklace. This is what regulation is for. I believe in balance between reform, stability, and development. We need quality pearls -- high-quality listed companies. We need enough pearls -- more listed companies. To make a long-lasting pearl necklace, we need a solid and resilient line, that is sound institutional structure in the right direction. Pearls require proper care against acid and alkaline. Regulation must be strengthened to protect investors' legal rights. In a word, to examine the efficacy and effectiveness of reform, the only criterion is whether the capital market is on a sound and stable track.

  At any time, regulation over capital market must make progress while maintaining stability. This is a fundamental principle ever since the birth of capital market and no one was exempted for going against it. Smart people will not make the same mistake twice. In capital markets, its operation and regulation alike both shall strive for progress in stability. From the end of last year to early this year, I had discussions with many people, including investors, securities companies, financial intermediaries and scholars, to get an understanding of their thinking. Intuitively, the majority cared stability the most last year. And for this year, the market is longing for progress while maintaining stability. We specifically calibrated our work plan in response to the market expectations at our Regulatory Work Conference. One of the crucial tasks is to make strides and breakthroughs in reform, especially on key reforms that have drawn market consensus.

  Admittedly, easier said than done. Many of you have told me that there is no easy task for us in today's capital market. Looking back, however, we are also in a favorable external environment, where we could put our heads together and share the same goal. Therefore, the words of President Xi Jinping will be imprinted in our hearts, for myself and my colleagues in the CSRC, that "Empty talk would lead the country astray, and hard work can rejuvenate the nation". We will act resolutely and steadily with a clear aim and a sense of urgency. As the Chinese saying goes, "It takes steps to go a thousand miles ", our reform will generate concrete results. Thank you!

  People's Daily and its website:

  Mr. Liu, you mentioned at the 2017 National Securities and Futures Regulation Work Conference that there are no confrontations between the stability of stock indices and the pace of financing. Many investors are particularly concerned about IPO issues. How do you see relations between IPO and stock indices, and how will you solve what is called the "IPO dammed lake" ?

  Liu Shiyu:

  Your question is somewhat sensitive. Certainly some people are worried that the increasing number of IPOs might affect the secondary market. In the past, when the capital market was facing mounting downward pressure, we reduced and even suspended IPOs to try to stabilize the market to ease the downward pressure. Those measures were effective for the moment but failed to be so in the long run. This is because they didn't improve the mechanism for the capital market's stable and long-term development, didn't address the source of problems in the capital market nor enhance the capital market's ability to serve the real economy. Surely, at a certain fixed point of time, increasing IPOs will affect the supply and demand in the secondary market, but it will at the same time improve the average price-earnings ratio. In comparison, when seen over a period of time, the capital market's fundamental driving force is serving the real economy and sharing its growth. A capital market detached from the real economy cannot last long. To make it last, there have to be new companies coming in to increase market liquidity and hence attract more capital. When the investment value goes up, the confidence of investing community will be enhanced, too.

  Since last year, the CSRC has been continuously strengthening its communication with market participants. The mainstream opinion is that after the abnormal fluctuations, the capital market made a better self-recovery than expected, and thus now met the conditions to allow more IPOs. As I mentioned just now, the fundamental principle of our work is to respect the market mechanism and rules, and comply with market demand. In light of this, we stepped up IPO reviews for the capital market and increased the number of listed companies in the capital market. Evidence has shown that the practice, which was based on market consensus, was well-received and viable. Last year, 280 companies were approved for IPO and 248 actually completed IPOs.

  Not long ago at the Annual Regulatory Work Conference of the CSRC, I said that we had confidence to solve the so-called "dammed lake". "Dammed lake" is a vivid metaphor for many companies lining up for dragging IPO approvals. In addition, there seems to be an expectation in the market that after a long IPO queue, a sudden IPO increase would send the market downward. When people see IPO applications piling up from 500 to 600 or even 700, they fear a sudden unleash would crash the secondary market. This is to say, the number itself doesn't matter as much as its psychological effect on the investors.

  I mentioned just now that we once suspended IPO when the stock market was moving downward, which twisted the psychological expectations of the market. We spent the last year managing to correct the twisted expectations. Certainly, the key wasn't in how many companies were approved. Some friends from the press asked why only eight IPOs this week, whereas in the other week, there were 14. I replied by saying that eight plus 14 divided by two is 11. I meant to say it wasn't about the number of IPOs we approved but the qualities of companies applying for IPOs. Last year, we made great efforts to scrutinize IPO and secondary offering applications, merges and restructuring. We held IPO underwriters and sponsors more accountable. Very soon, we will announce a number of major cases and the punishments. Last year, we required sponser firms to shoulder their responsibilities in risk management. A total of 90 IPO applications were withdrawn. It takes the joint effort of all to guard IPO quality. High-quality listed companies would bring capital increments for the market, which has been proven as a highly positive correlation.

  Certainly, after the market develops, we'd be empowered with more means at hand to dredge the "dammed lake". Not only the two bourses in Shanghai and Shenzhen have a better accommodating ability for new companies, the National Equities Exchange and Quotations (NEEQ) will also have a bigger role to play. The legal status and operation rules of the regional equity platforms have been clarified, which will allow it to fulfill its due purpose to serve local micro- and small-sized enterprises in equity financing. Further complemented by standardized M&A and reorganizations, the capital market will be better positioned to meet equity financing needs and nurture higher-quality listed companies.

  In addition, you could assume another perspective in your way of looking at the number of companies queuing for IPOs. China is a major developing country, and the innovation-driven strategies being implemented will bring more companies to tap on capital market for listing. This isn't a bad thing, but rather a sign of China's economic vitality and the source of flowing water for the development of China's capital market. I believe that the confidence of the capital market participants will be further enhanced via your report. Thank you.

  Reuters:

  Two questions. First, what do you think are the chances that China will be included in MSCI this year? Second, at the end of last year, the State Council said that foreign companies will be encouraged to list on China's domestic stock markets. That's been said for many years in the past. When do you think we will see that? Will there be any progress this year?

  Fang Xinghai:

  Thanks for your question. We'd like to see the inclusion of A-shares in MSCI Index and welcome such arrangement. It is in our view that any stock index on emerging markets, be it MSCI or others, would be incomplete without China. But the decision rests with MSCI and it is purely commercial, involving a number of commercial considerations. We remain open to discussions with MSCI but unable to put a deadline on it. The reform and opening up of the Chinese capital markets, including the stock market, firmly follow the market-oriented, law-based, and international direction, unaffected by whether or not A-shares is included in MSCI. In our communications with MSCI, we listened to their expectations, some of which are fully in line with the reform and opening up of the Chinese capital markets. On that end, we are determined to forge ahead but at a pace commensurate with the market itself.

  For instance, further improvements to the trading suspension rules on China's stock market. Foreign institutional investors are concerned that their freedom to trade is hampered by frequent suspensions. I think we should address this issue and resolve it, as the same concern is shared by domestic institutional investors. Measures to this end will be promoted in due time.

  For your second question, I reckon you were referring to the domestic listing of companies incorporated overseas on, as what we call, the International Board. We have been studying it. I myself was engaged in the study of International Board since my time in Shanghai, as some of you may recall. There are some technical hurdles. Accounting standards, for example. International accounting standards frequently adopted by foreign companies, such as US GAAP and Accounting Codes of European Union, or other international financial reporting standards, cannot be readily applicable in Mainland without adjustments. The costs of such adjustments, as one of the many issues, require further technical considerations. Market regulatory rules, for another, also differ in China and abroad, such as information disclosure rules. Therefore, the launch of the International Board is tied to institutional rearrangements. In short, it is on our agenda, but no specific timeline has been set.

  China Securities Journal:

  Just now, Mr. Liu mentioned that the capital markets should serve the real economy. We all know that the securities and the fund industries have made significant progress. The CSRC also vows to set up a national team which can represent China's capital markets. My question is: how will the CSRC make efforts to improve the capability and competitiveness of the securities and the fund industries, in order to serve China's real economy. Thanks.

  Liu Shiyu:

  I'd like to invite Mr. Li to answer this question.

  Li Chao:

  Thank you for your question. First I would like to share some figures about the securities and the fund industries. By the end of 2016, China has 129 securities companies with total assets of 5.8 trillion yuan, net assets of 1.6 trillion yuan , net capital of 1.47 trillion yuan, and net profits of 123.4 billion yuan in 2016. There are 109 fund management companies with total assets of over 170 billion yuan and net assets of 110 billion yuan. Asset under management by the securities and the fund industries reached 43 trillion yuan, among which mutual funds surpassed 9 trillion yuan and private funds of over 30 trillion yuan. Generally speaking, the securities and fund industries rest on adequate capital and improved risk management and asset management.

  Intermediaries and asset management institutions are key participants in the capital markets. In recent years, the overall securities and fund industries have made positive contributions in serving the real economy, implementing national strategy and satisfy public demands in asset management. In 2016, securities companies have provided underwriting, sponsoring and financial advisory services for a total of 7.5 trillion yuan worth of stock, equity, and bond financing, and have provided professional financial services for over 10 thousand growing micro- and small-sized enterprises to access capital market.

  The mutual fund market is much familiar to you. Currently, there are nearly 200 million retail investors in mutual fund, more than 85 percent of them hold assets less than 50,000 yuan. In terms of rate of return, since 2001 when mutual fund was first offered, the rate of return for securities investment funds had reached 16 percent and bond investment funds over 8 percent, which have cumulatively provided 1.5 trillion yuan in dividend for fund holders. For sure, some investors, who suffered losses in their fund investment, may not accept these numbers, thinking it's over optimistic. However, all the numbers are averaged over a long time horizon, reminding us to avoid short-term speculation. In this area, fund investors can learn experience from social security funds in terms of investment philosophy and asset allocation.

  In addition, securities and fund companies actively serve the "Belt and Road" Initiative and support countries along the route to issue Renminbi-dominated bonds in China. Meanwhile, the industry also serves the government's strategy of poverty alleviation. Currently, more than 80 securities companies are providing their help to over 130 national-level poverty-stricken counties by taking the unique advantage of our industry. They aim to improve the self-restoration ability of these poverty-stricken counties and fulfill their social duties.

  Generally, with successive efforts, the securities and the fund industry has achieved encouraging progresses, which are demonstrated by the following aspects: firstly, corporate governance has been greatly improved. After rectification and clean-up campaigns, phenomena such as misappropriation of company capital, embezzlement of client funds have been rooted out. Secondly, the sense of fiduciary duty strengthened. In the past, intermediaries were often involved in information fraud and misrepresentation. In 2016, we saw less occurrences of such misconduct. Just as Chairman Liu pointed out , last year 90 companies withdrew their IPO applications at the advice of the securities companies. Thirdly, the compliance system has been established preliminarily. Fourthly, more importance has been attached to investor suitability management.

  Of course, we should realize that the capacity of our securities and fund industry is not commensurate with the needs of our economic development, including the capital markets. And we have a long way ahead of us to match up with the international players. Firstly, astray business philosophy. Some institutions are still pursuing volume and short-term profits rather than growing core business. Secondly, weak compliance and risk management. In some institutions, compliance control performs practically no function. Although insider trading, cross selling, and rat trading are not as rampant as years ago, yet they are not fully eradicated and still cause great damages to the reputation and integrity of the industry. Thirdly, insufficient awareness of fiduciary duty. Fund companies are bound to manage assets for investors and securities companies to provide valuable financial products for the market. Yet, this industry has not fulfilled its role as gatekeeper and inspector. Fourthly, shortage of professionals and high-level talents. Especially, we do not have any globally competitive investment banks and asset management institutions. Just now you mentioned the "national team", I guess you are actually referring to such institutions.

  The abnormal fluctuation in the stock market in 2015 set off an alarm for both the entire industry and the regulators. Financial institutions have made significant profit in 2015 and enjoyed greater year on year increase. But the industry's reputation didn't grow proportionally, some of them even have their names tainted. It drove us to examine ourselves. The abnormal fluctuation in the stock market has taught us a bitter lesson not only to financial institutions but also to regulatory bodies. It has made us to contemplate over our deficiencies and deviations on our regulatory philosophy.

  Since 2016, the CSRC adhered to comprehensive, law-based, and strict market  regulation and persevered in our core mandates by improving the regulatory framework. We reviewed and standardized the business structure of securities and fund companies, put restrictions over blind expansion and regulatory arbitrage, and urged the industry to steer onto its core business. Risk management and compliance system are further strengthened and industry-wide self-disciplinary mechanism is established. In the future, the institutions shall be self-motivated in solving problems rather than relying on regulators to clear up the mess. Moreover, we stepped up efforts in enforcement and dealt with violation cases severely. In 2016, we carried out over 200 administrative measures, involving senior executives and practitioners in several dozen securities and fund companies.

  Looking forward, we will stick to the overall position of CPC Central Committee and State Council, to uphold the right supervision philosophy, so as to avoid systemic financial risks. In 2017, we are going to focus on the following areas on intermediary supervision: firstly, implementing fully the requirements for compliance and risk prevention, to beef up the foundation; secondly, standardizing investment banking business, and holding underwriters and sponsors accountable, to prevent misconduct by the gatekeepers, and strengthen the intermediaries to serve real economy; thirdly, enriching the financial products available to meet the people's needs for wealth management and pension management. At the same time, CSRC will continue supporting those firms that are sound in operations, competent and solid in internal controls, and encouraging them to set up full-service, competitive, and world-class investment banks and modern asset management companies.

  Bloomberg News:

  What are China's plans to further open capital market to foreign investors? In your conversation with foreign investors, do you find other main concerns about investing in China's capital market? How does CSRC plan to address those concerns?

  Fang Xinghai:

  Thanks for your question. The opening up of the Chinese capital market, as you asked, broadly covers two aspects. For one, we have mechanisms in place for foreign investors to invest in China's stock markets, bond markets, and others, including QFII, Shenzhen-Hong Kong Connect, Shanghai-Hong Kong Connect, etc.. For the other, it pertains to how to allow foreign financial intermediaries into the Chinese market, such as securities companies, fund management companies, and futures brokerage companies. The Chinese capital market, especially the securities and futures sectors under the CSRC's supervision, welcomes foreign investors and financial intermediaries to invest and do business in China. Currently, one single foreign shareholder is allowed to hold up to 49% of the equity in a joint venture (JV) securities company, and the same applies to JV fund management companies and JV futures companies. Foreign investors can also set up wholly owned private fund management companies. Under the framework of Mainland-Hong Kong Closer Economic Partnership Arrangements (CEPA), Hong Kong-based securities companies are entitled to some other privileges, whereby elevating Hong Kong's role as an international financial center.

  Under the strategic plan of the Party Central Committee and the State Council, we are preparing measures to further open up the securities and futures market to foreign institutions, including gradually uplifting shareholding limits by foreign investors in joint venture securities and futures companies, with an aim to benefit the development of domestic securities and futures markets.

  Apart from voluntarily initiating the above-mentioned opening up measures, China attaches equal importance to the two-way opening up on a reciprocal basis under the framework set up by bilateral or multi-lateral international agreements. We have been working for it in the ongoing negotiations with the US and EU on respective bilateral investment treaties (BITs). The CSRC is very willing to facilitate two-way and equal opening up under international treaty and to further expand opening up under the same frameworks.

  Xinhua News Agency:

  The CSRC is now revising the Corporate Governance Code for Listed Companies.. How to enhance CPC leadership in corporate governance? Do you have specific recommendations? How to coordinate the two aspects effectively?

  Liu Shiyu:

  The leadership of the CPC has stood the test of our people and history. The PRC's Constitution clearly stipulates that the leadership of the CPC is the core feature of the socialism with Chinese characteristics. Article 19 of the Company Law states clearly the requirement to set up Party organizations and conduct Party activities in companies. I hold that the Party organizations will shoulder different responsibilities in companies with different ownership structures. At state-controlled listed companies, the Party committee forms the political and leadership core; at privately-owned listed companies, they should provide necessary conditions for Party activities, guarantee the rights of Party members, and give full play to the roles of Party organizations and members.

  I was both the Party Secretary and Chairman of the Agricultural Bank of China, so I had personal experiences and thoughts on this matter. Under that capacity, I had communicated with other party secretaries, chairmen of the Board of Directors, CEO, and chairmen of Board of Supervisors of large state-controlled listed companies. We share the view that leadership of Party Committee and its political core role is in harmony with the need to enhance corporate governance. Because, the Party Committee should be aware of the status quo, missions and challenges facing the company, and should look in depth into the material issues ahead of Board deliberation. Actually, the view of the Party Committee on the priorities and missions of the company, and the depth and quality of strategic research by the Party Committee lay a foundation for corporate governance, especially for the decision-making of the Board. On issues that the Board flags disagreement, the Party Committee would rectify after research and would respect the opinions of the Board and that of the directors. For decisions made by the Board, the Party Committee would list them into its agenda, and take actions to complete the jobs within required time frame. Regarding the proposals submitted to the Board, our directors, be it the foreign directors or independent directors, would always ask whether they have been deliberated by the Party Committee. They believe the proposals deliberated by Party Committee are of adequate information and depth. In a nutshell, the Party Committee leadership well accords with corporate governance.

  There is one thing in common in listed companies. No matter they are state-controlled, private or companies with mixed ownership, the ones withstanding market competition are those who value Party's role and the role of party members as pioneers and models in their companies. The ones who fail are just the opposite. Maybe you have noticed that the CSRC severely punished some listed companies last Friday. No matter what kind of ownership is involved, a listed company should follow the fundamental political system in China and abide by laws. Listed companies have to be responsible for the interests of shareholders, the society and the nation, and so should surely be under stricter supervision.

  I see corporate governance as culture, a philosophy, a system and operational mechanics. There is no one-size-fits-all model or system of corporate governance. OECD believes that good or effective corporate governance systems are of national characteristics. They have to be tuned with local market features, institutional environment, and social traditions. CSRC and CAPCO, together with relevant departments, are revising the Corporate Governance Code for Listed Companies. In the process, we will keep abreast with international standards, and also take into account the Chinese characteristics, especially the fundamental political system in China. We expect the revised code could promote the listed companies to further clarify the structures, responsibilities and rules of party organizations. Now, both the privately controlled listed companies and companies with foreign ownership emphasize on the role of party branches as the backbone, and the role of party members as pioneers and models. I would like to accentuate that Party Committees are the core leadership and political core in state-controlled listed companies. This is absolutely clear. I think listed companies are conscious and of consensus on this issue. Thank you. 

  CGTN:

  Chairman Liu, as you have just mentioned, the National Equities Exchange and Quotations (NEEQ) attracts a lot of public attention. How will the CSRC promote the development of multi-tiered capital markets? What kind of new measures will be implemented on the reform of NEEQ and regional equity platforms?

  Liu Shiyu:

  I'll give the floor to our Vice Chairman Mr. Zhao Zhengping, who's in charge of the issue.

  Zhao Zhengping:

  Firstly, thank you for your question on the multi-tiered capital markets. In China, we have stock market, bond market and derivatives market. The stock market has multi-tiers, including the exchanges, the NEEQ and regional equity trading platforms. In the past two years, and especially last year, the NEEQ market developed rapidly with over 10,000 companies quoted. Actually, up to February 24, the number had reached 10,715. So many micro-, small and medium-sized businesses, by accessing the capital market, have improved their financing structure, enhanced their brand value and energized investment of social capital in start-ups. The equity financing volume of NEEQ listed companies so far has totaled at 290 billion yuan, among which 139 billion yuan was raised last year. Hence, this has resolved many financing difficulties for micro-, small and medium-sized businesses and reduced their financing costs. The NEEQ market, being an important part of the multi-tiered market structure, still has great potential in assisting innovative, start-up and growing businesses.

  Reforming NEEQ is one of our priorities this year. On one hand, we will safeguard the bottom line and regulate the market effectively, and on the other, we will take proactive measures to guide its development, so as to improve its core functions in financing and trading. We hope to upgrade the NEEQ market not only in terms of numbers of companies but also in terms of the quality. The key to our reform is to improve market layering, to link the reforms of issuance, trading, investor access, and supervision, and to provide differentiated institutional arrangements for diverse listed companies and unleash the market potentials. Our objective is to help speed up the development of micro-, small and medium-sized businesses that are strong in innovation, solid in integrity, standardized in operations and promising in future growth.

  The regional equity trading platform is also an important component of the multi-tiered capital markets. Confined to the provincial administrative region where it is located, the regional equity trading platforms are private equity market for local micro-, small and medium-sized businesses. Until now, there have been 40 regional equity trading platforms established with a total of 16,000 companies quoted and 58,000 demonstration companies. The financing volume has reached 680 billion yuan. These regional markets are rooted in local markets, and are inclusive to a variety of micro-, small and medium-sized enterprises. If developed well, the regional equity platforms could bring about new platforms for direct financing.

  Last month, General Office of the State Council issued Notice on Standardizing the regional equity platforms, providing for specific institutional arrangements on market positioning, management systems, investor access, operating institutions,etc. In accordance with the Notice, CSRC will focus on the following three areas: firstly, issuing unified business and regulation rules. The drafted rules are under consultation; secondly, strengthening guidance to, coordination with and service for provincial governments' regulatory work; thirdly, monitoring and inspecting the standardized operations, and providing early-warnings of potential risks, and monitoring and guiding the risk disposals. Where there is market abuse or violations, CSRC together with local governments will investigate into those case. More still, CSRC will take a series of measures to support the regional equity platforms, including the cooperating and connecting mechanism with NEEQ, and encouraging securities brokers to participate in these regional markets.

  Through our joint efforts, we hope we can turn them into incubators for micro-, small and medium-sized businesses, an important channel for equity financing, and a comprehensive platform that micro-, small and medium-sized businesses will receive support from local governments so as to ensure that the capital markets serve businesses and the real economy in a better way. Thank you.

  Futures Daily:

  Mr. Liu, good morning. The prices of some commodity futures, especially coal, steel and coke, witnessed great fluctuations last year due to the liquidity shock, which attracted widespread attention. The CSRC issued a series of measures ensuring stable operation of the commodity futures market in 2016. We noticed recently that the prices of rebar and iron ore futures have edged close to a record high. I wonder what does the CSRC have in mind in supervising the commodity futures market this year? And, how will the CSRC further promote the reform and development of China's commodity futures market so as to better serve the real economy? Thank you.

  Liu Shiyu:

  I will ask Mr. Fang Xinghai to answer your question.

  Fang Xinghai:

  This is quite a broad question and I will give you a brief introduction. The trading of coal, steel and coke were quite active last year, and prices fluctuated greatly. This was due to a number of reasons. First, China wanted to slash production capacity last year. Second, the property market was quite active, leading to demand outstripping supply. Moreover, speculative capital constitutes a large part of China's financial system. Speculation arises for two reasons: "stories" and capital. The coal, steel, and coke futures market last year satisfied the two factors, therefore, we saw a flood of speculative capital last year.

  The CSRC is committed to safeguard stability in the financial market with special efforts made to tap the potentials of futures market to serve the real economy and industrial clients. The futures market has two main functions: price discovery and risk hedging, which are not dependent on high trading volumes. We managed to reduce the overheated trade volume last year as we adopted the following measures: increasing transaction costs, properly uplifting margin requirements, tightening the daily open interest of some speculative accounts, suspending misconducting accounts and investigating into such dubious accounts. The general idea was that the market did not need any unreasonably heated trading, and the futures market should be allowed to play its inherent role. We are satisfied with the outcome of last year's regulatory efforts, as trading overall was stable and the future prices were lower than spot prices.

  As for this year, firstly, considering the fact that the role of futures market has yet to be fully established, we plan to launch some new products this year, such as options of agricultural products. We are also stepping up in the launch preparation of crude oil futures, aiming for an earlier launch date. We will put more efforts to advance product diversity. Secondly, In terms of transaction supervision, we will adhere to last year's principles, which is that we don't need overheated trading, rather, we shall allow futures market's role in price discovery. We will draw up measures, such as bringing in more industrial clients, to refine product pricing.

  Meanwhile, we will also further internationalize the futures market, that is to say, allowing more overseas customers to enter China's futures market. Futures market, commodities in particular, is itself an international arena. Segregating overseas investors from the domestic futures market will hamper domestic pricing and restrict our role and ability to participate in international resource allocation. Therefore, we still have a lot more to do. Thanks you.

  Hu Kaihong: Last two questions. One from domestic media and one from foreign media.

  Zaobao Singapore

  Recently, there were words that the CSRC is considering offering shortcut to domestic Fintech companies to IPO on China's stock markets. Can it be confirmed? What are the specifics of the measures? As it's nearly impossible or very difficult for Fintech companies to IPO in China, many of them turned to the US for listing. How would you compete with foreign exchanges and encourage these Fintech companies to list in the Mainland?

  Liu Shiyu: We'd render our support to any companies who finance on the Chinese capital market as long as they are technology-driven and innovation-driven to the benefit of national economic transformation and supply-side structural reform. The Chinese capital market is open to them. However, the companies have full discretionary power over their IPO destinations and such rights are fully respected at the CSRC. Aside from raising capital, companies listed on foreign exchanges are also subject to due regulations that will help strengthen corporate governance, which is a good thing. Here in China, rules and regulations are also being improved. For example, IPO on the Main Board requires the company to show profits for 3 consecutive years, which is unattainable for most Fintech companies. Meanwhile, the CHINEXT and NEEQ have taken the factor into consideration and accommodated the requirements for such companies. All in all, we respect the companies' choices of their IPO venues. The investors, who hope to share the success with the high-tech and Fintech companies, will also shoulder the risks with them.

  As for the alluded competition between our exchanges and those abroad, such as NYSE and SGX, frankly, we are merely venues in different locations housing the same test in our own languages. As the representatives of their peers in China, the Chinese companies listed overseas are being tested to prove their worth and merits. Currently, we cooperate with foreign exchanges rather than compete. I have absolute confidence and faith in the Chinese capital market, and thanks to the positive energy on the media, I believe our exchanges will be able to join the competition one day. Thank you!

  China Business Network:

  My question relates to market regulation. In your opening remark, Chairman Liu, you outlined the principle of law-based, comprehensive, and strict regulation. At various occasions last year, you warned some institutional investors not to become "barbarians at the gate." You also said that you will punish the "financial predators" at the beginning of this year. I wonder who the "barbarians" and "financial predators" are. Thanks.

  Liu Shiyu:

  Your question is very thorny and hard to answer. But I still thank you for bringing it up. I do have some comments.

  First, if the CSRC has three top mandates, they are regulation, regulation and regulation. This is its clear and unshakable role. Only with law-based, comprehensive, and strict market regulation can we maintain an open, fair, and equitable market order and can we protect the interests of small and medium investors.

  Second, after I came to work at the CSRC, I spent quite some time to digest the ploys and maneuvers in the capital market and I felt a sense of shock. I wanted to tag those maneuvers with simple, proper, and common words, "barbarian," "demon," "pests" and "financial predators". I did not create those words. These people play on the margin of law and blatantly flay the skin and suck the blood of the small and medium investors. The mission of the CSRC is to restore market order. We cannot just sit back and watch it happen.

  Admittedly, opinions differ in market regulation. I closely followed media coverage on my speech at the AMAC Annual Meeting on Dec. 3 last year. There were questioning, criticizing, and applauding. But all showed keen concerns to the sound and stable development of the Chinese capital market and care for  myself and the work of CSRC. Honest advice may be unpleasant to hear but surely conducive to action.  If the CSRC CPC committee and myself had to shed some feathers for a specific case at a specific occasion, we'd accept it for the bigger sake of protecting the legal interests of small and medium investors. Our sole and only commitment is to provide better protection to small and medium investors and maintain market order. The lost feathers will grow again.

  Third, big money is a huge temptation in the financial market. There is only one thin line between an angel and a devil. It is just half a step away from being a financier or a "financial predator". Any transaction in today's capital market is recorded, thanks to the computer technologies such as big data and cloud computing. Even in the earliest days when calculations were done on an abacus, there would be trails left behind. That is to say, any behavior that is illegal, harmful to the small and medium investors, and destructive to the market order, taken by any individual or any institutional investor at any time is recorded. We will lock our eyes on any current and historical records and fight against the misconducts. I have said more than once that institutional investors in the fund industry shall refrain themselves from being "barbarians," "demons" or "pests". But when I said we'd be harsh on "financial predators", I was referring to the misconducts. It should not be conveniently connected to a specific person. Such connection takes time and great efforts to find traces leading to that person.

  As for who are the "barbarians," "demons," "pests" and "financial predators", if I told you, I would be prejudging my future investigations. Thanks.

  Hu Kaihong:

  That's all for today's press conference. Thank you.

  

  



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