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Securities Market Must Heed WTO Entry
Having experienced many trials and hardships over the past decade, China's securities industry will take firm steps to build a healthier and more mature market in the new year, an article in the magazine Outlook Weekly said.
The country's first-ever securities law has brought better order to the securities market since it came into effect in 1999.
Last year, the industry made noticeable breakthroughs in many areas including reform of its administrative and stock-issuing systems, fostering the entry of high-tech enterprises into the market and strengthening the supervision of public companies.
A second board market, which will provide more convenient access to the market for small and high-tech firms, is likely to be set up in 2001.
Other plans, such as selling some of the shares held by the State and adjusting the B-share market, are under study.
However, the 10-year-old Chinese securities market still has a number of problems to deal with before it can be classed as a mature market.
Manipulation and fraud frequently occur, because there is neither sufficient staff nor adequate measures to crack down on these illegal activities.
And the closed-door market is quite secluded from the outside world.
The administration will address these problems and try to find solutions, Zhou Xiaochuan, chairman of the China Securities Regulatory Commission (CSRC) was quoted by the article as saying.
The article also suggested that the government should be circumspect in its exercise of its macro control, because many problems have occurred thanks to government interference in the specific affairs of the market.
For example, the numbers and prices of new shares are set by the government, and this has led to great discrepancies between the issuing prices in the primary market and the trading price in the secondary market, leading to corruption in many cases.
Such affairs should be decided by the market and the government should deregulate them.
Former CSRC Chairman Liu Hongru said in the article that the government's main job in the market is to protect the interests of investors through strict supervision. The stricter the supervision is, the stabler the market will be.
The government should speed up the development of a multi-level market system and, particularly, should open the second board as soon as possible, urged the article.
The second board will provide a direct financing channel for promising high-tech enterprises, which are usually small and privately financed. It will also lure more and more citizens to transform their deposits into investments.
It will inspire technological innovation and boost the development of high-tech sectors, and therefore push forward the country's industrial upgrading.
The government should also broaden the scope of the securities market. Trading in futures and bonds should be developed in addition to traditional stocks.
And a national index system needs to be created to provide a unified norm for the market and to curb risks more effectively.
The administration should take practical measures to protect the interests of investors, small and middle investors in particular, said the article.
Open, accurate, comprehensive and timely reporting of information should be the cornerstone of a fair market. Otherwise it is impossible to protect the interests of small investors.
However, public companies usually take advantage of small investors because of their economic power and better access to information.
At times, some companies give false information, forge financial reports and fabricate profit records.
Many investors have hence become victims of frauds and their enthusiasm for and trust in the market will wane rapidly if there is no justice in the system.
The article quoted CSRC officials as saying that the commission will strengthen supervision of the market and that protecting small investors will top their agenda this year.
In recent years, CSRC has set up dozens of supervisory offices all over the country and recruited a group of accountants and lawyers for its supervisory team, according to Tu Guangshao, secretary-general of the CSRC.
From 1999 to March 2000, CSRC investigated 440 cases involving illegal practices in the market and 360 institutions and 408 individuals were punished. The fines totalled more than 1.3 billion yuan (US$157 million).
However, Tu said the work that has been done is far from enough.
The supervision team is in desperate need of more qualified and experienced personnel.
Manipulation and insider dealing still linger on, which has hurt many common investors.
It is critical to crackdown on fraud in the market, including fabrication in applications for listing and false information reports, the article emphasized.
The administration should foster a group of independent brokerage institutions to help clean up the market.
Liu Hongru was quoted by the article as joking that the commission was "hamburgered" between the government and investors because a ballooning market often gets warning of risks from the government while a sluggish one will scare investors away.
Then which path should the Chinese securities market take?
In fact, the waxing and waning of the market are not decided by the government or investors' will.
On the contrary, performance of public companies should be the main determinant of prices in the market.
According to a survey among 236 global investment institutions in 2000 by McKinsey, the world's leading consultancy agency, most investors are willing to buy shares of outstanding companies, even with a premium of 24 to 31 per cent of the price.
In China, many public companies perform poorly and fail to live up to investors expectations. It has even damaged the image of the overall capital market.
Some local governments even connive at fraud and other illegal activities committed by local public companies, which are usually State-owned, to preserve their vested interests.
The article suggested selling some shares of State enterprises to institutional and private investors in a bid to reduce the direct influence of the government in these enterprises and enliven their management.
There is not much time left for the securities market to clean up its house, as China's entry into the World Trade Organization (WTO) is imminent.
China faces an uphill task in modifying dozens of its legal and accounting rules concerning the securities market to get them in line with international practice.
According to WTO rules, China will phase in foreign securities institutions and allow them to form Sino-foreign joint funds, and qualified foreign stocks will be allowed to list on Chinese stock markets.
Currently China has no first-rate investment banks or other brokerage institutions that can rival the global giants.
While opening the market to outsiders, the government should encourage private investors to set up brokerage agencies to give the market a shake-up.
And it can encourage banks, insurance companies and securities companies to integrate their business and form large financial groups, as this will sharpen the competitive edge of the country's financial industry, said the article
Source: China Daily
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