PD Online Forum: Building a healthy, prosperous stock market

UPDATED: 17:32, June 13, 2007

Ups and downs in the Chinese stock market weeks before have taught domestic investors a lesson that they will never forget: tears, laughs, joy and sorrow. As more and more ordinary Chinese set foot into the overheated stock market, it has been put into question whether the stock watchdog in China has lost control over the domestic market, and whether raising the stamp tax is a kind of black-box operation?

At the invitation of People's Daily Online, Liu Jipeng, professor with the Law and Economics Research Center, at the China University of Political Science and Law, and Li Zhenning, Chairman of Shanghai Rising Fund Management Co., Ltd, visited Strong China Forum on June 7th, during which they spoke freely about the issues investors cared about most. They also answered questions from netizens on the subject of "building a healthy and prosperous stock market".

Adjustment of the stamp tax will not change the basic pattern of the bull market

Li voiced his confidence on the prospect of the domestic market. In an interview with China Securities Journal, he said that when the market rebounded after a previous plunge, the adjustment of the stamp tax would not affect the basic pattern of the bull market, and warned investors not to overreact.

According to Li, the split share reform has unified the market, in equity as well as in shareholders' interests. In the past, large shareholders misappropriated a great deal of capital from listed companies, and infringed on their interests through associated transactions. However, currently large shareholders can realize their goals through share prices, which bring fundamental changes to their trading. Under such favorable circumstances, domestic stock markets have experienced a benign cycle of events. Drawing a comparison between the domestic market now and rural reform dozens years before, Li expressed his optimism in the vitality and vigor of today's market Therefore, the rise of domestic market, supported by a sound performance, will not be easily changed by any single factor such as the stamp tax.

While quieting public complaint over the black box operation on raising the stamp tax, Li explained that the government adopted such a policy out of concern for public interests: will the unusual market surge affect the material economy once it plunges? What if amateurs get hung up on the market? The government meant well, but the policy did not live up to its own expectations.

Having a correct concept of investment, and being rational investors

While commenting on the solution to the issues that plague the domestic market, Professor Liu said that a brand new situation appeared in China's capital market right after the split share reform. In terms of the importance of split share reform, people tend to associate it with the interest of large shareholders, stock price and the perspective that China shakes off hardship in the capital market.

However, of most important significance, is that the reform has made the Chinese aware of the price and value of state assets. The share merger reform will lay down a solid financial basis for building a society that is well-off. However, there are also some problems that require immediate attention. For instance, the sharp rise in the domestic market this year provided the Chinese with a good opportunity achieve a balance within the market amid the deepening of market reform.

Professor Liu said that they planned to issue corporate bonds, which at present do not face any barriers throughout the evaluation and approval process. On one hand, this reflects a great leap forward in financial innovation. On the other, it can also regulate risk within the market, and offers various financial products for people with different tastes. It has the advantages of an easy transfer, a high return and low risk.

Apart from that, more attention should be given to the supply of listing resources, H shares, as well as the regression of red chips. The capital market in China is becoming increasingly prosperous and promising, and entrepreneurs have turned their face back toward the mainland market. China, under such circumstances, should welcome the best listed companies back home so as to strengthen the international competitiveness of the Shanghai and Shenzhen Stock Exchanges. A strong capital market serves as a driving force for China to remain steadfast within the international market.

Domestic market is promising

Professor Liu noted that the main intrinsic characteristic of the capital market is the realization of an optimal allocation of resources through invisible hands. It will truly reflect the development of the national economy, as well as political and social harmony. Secondly, the market has a financing function. The financing function of the domestic stock market has been put into full play since 2007, with IPO financing in the first quarter of this year reaching some 80 billion Yuan. Thirdly, it has the function of allocating resources. Many listed companies with an outstanding performance have become all the rage in the market, and their new issues of share offering as well as share placement, have found favor with investors. Additionally, it has the function of value appreciation, and the final one is the value discovery of the capital market.

For all the reasons mentioned above, Professor Liu has assured netizens that the domestic stock market is prosperous and healthy. Almost all the characteristics of a healthy and prosperous stock market can be found in the domestic market. At present, the market is sound. All investors should be confident in the development of national economy, and the realization of a well-off and harmonious society.

By People's Daily Online


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