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Looking Back at China's Securities Market's Last 10 Years
The Shanghai Composite Index closed over 2000 points on July 26,2000 for the first time ever.
China's securities market has gone through a long experimental phase. During this period, the securities market's laws and regulations remain incomplete and imperfect. People lack a deep understanding how the securities market functions. And the role of the securities market in China's economy is uncertain.
Due to these factors, investors are unwilling to make long-term investments. Add the small scale of the market to wild market speculation has resulted in four huge fluctuations in the market in recent years. The index reached a peak of over 1,500 points and plunged to under 350 points. Despite the frequent fluctuations, the Shanghai Composite Index averaged 700 points during this period. China's GDP grew an average of 12% during the past couple of years but the stock market never reflected the economic growth. The stock market is influenced by non-market factors. For instance, the rises in December 1992 and July 1994 were both triggered by policy changes such as controls new stocks or increasing the supply of funds to the stock market.
In early 1996, along with the soft landing of economy and continuous cuts in interest rates by the central bank, the Chinese stock market took off, marking the start of a one and a half year bull market. During this period, the concept of rationale investment started to take root and the securities market made some material developments. The developmental stage lasted from early 1996 to May 1999, three years. During this period, the average stock index rose 1,200 points.
The stock market reacted positively to the policies proposed in 15th National People's Congress. A March 1999 amendment made it clear that the "non-public economy is an important component of socialist market economy". These important statements on socialist market economy system give support to investor's confidence and overcame the psychological pressure arising from 1998 floods and Asian financial crisis. The stock market rose over 1,000 points from May 1997 to May 1999. Since then, the stock market began to make an immediate correlation to China's economic growth. During this period, the securities market expanded quickly. By the end of 1998, the number of listed companies in Shenzhen and Shanghai had increased from 323 in late 1995 to 851. The total market value of listed companies accounted for 24.49% of that year's GDP.
With the development of New Economy, the bull market sprung up around the world. The market's understanding of the New Economy can be divided into two phases. First, were the Internet concept stocks such as Eastern Mingzhu's WebTV stock in May of 1999. Then there were e-commerce stocks such as Shanghai Meiling and Zhongyi shares. The New Economy directly spurring stock market is one of the greatest achievements in China's twenty year reform history. The 15th NPC has confirmed the strategic adjustments of China's state-owned economy and will use technological advances to upgrade the state-owned industries.
The Securities Law was finally passed after six years of amendments. This marks a new era in the legal system of the securities market.
Since this year, an approval system for IPOs was implemented and withdrawal mechanism for public companies will be launched to improve the quality of listed companies. Allowing stock-mortgaged financing, encouraging the entry of insurance funds and social security funds into stock market, establishing joint venture management funds and plans to introduce "qualified foreign institutional investors" would not only greatly increase the supply of funds in the market but also promote the internationalization of China's securities market. The Chinese economy will hopefully end seven consecutive years of declining economic growth this year. We have reasons to believe that the future of China's securities market would be brighter.
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