China Accelerates Capital Market Reform to Counter Virus, U.S.
The government is trying to funnel more funds toward private enterprise as officials seek to minimize the impact of the Covid-19.
(Bloomberg) --
Faced with the twin threats of a slumping economy and rising tension with the U.S., China is speeding up efforts to boost stock trading and open its capital markets.
In recent months Beijing has unveiled a series of measures including a new streamlined approach toward initial public offerings to plans to increase daily price limits for some equities, letting some of its biggest banks trade bond futures and a new batch of stock-index options contracts. In the latest move, the Shanghai Stock Exchange said on Friday it will overhaul its benchmark index.
The government is trying to funnel more funds toward privately owned enterprise as officials seek to minimize the impact of the coronavirus pandemic on its economy. At the same time, concern over Chinese firms’ reliance on U.S. markets for fundraising, especially in the technology sector, is driving action to increase the allure of homegrown bourses. This includes Hong Kong, which is seeing a wave of secondary listings by mainland companies.
“You can feel China’s capital market reform is accelerating in a very palpable way,“ said Zhao Jian, head of the Atlantis Financial Research Institute in Beijing. “The trade war is creating the need to open the financial market, while the effect of the virus is pressuring authorities to create more convenient channels for small and medium-sized firms to raise funds.”
The new reforms are typically tested on Shanghai’s Star market of startups, which was launched last year, as well as on Shenzhen’s ChiNext board. Analysts are hopeful that measures such as a speedier IPO system and allowing trades to settle on the same day will be introduced more widely, along with permitting shorting equities.
Here is a timeline for key reforms carried out in the past year:
June 19, 2020
BENCHMARK REVAMP: The Shanghai Stock Exchange will adjust the timing for newly listed stocks to be included in the benchmark index and include Chinese Depositary Receipts of so-called red chips -- Chinese companies incorporated overseas and listed in Hong Kong -- as well as Star board companies. Revised rules on benchmark index will be effective from July 22.
June 12, 2020
CHINEXT REFORM: China unveiled a series of rule changes for Shenzhen’s ChiNext board, including doubling daily price limits for all stocks, a registration-based system for IPOs and scrapping price caps altogether for stocks in their first five days of trading.
May 29, 2020
SAME-DAY SETTLEMENT: The Shanghai exchange said it’s studying a “T+0” mechanism that will likely increase trading in stocks on its startup board. The new arrangement would allow investors to sell shares on the same day of purchase once per session, while currently they can only do that the next day.
March 1, 2020
TWEAKED RULES: On March 1, China’s latest amendments to the Securities Law took effect, which, among other things, replaced a stringent approval system with a registration-based method for companies to issue exchange-traded debt. It also eased IPO rules and stiffened penalties for violations in the country’s capital markets.
February 21, 2020
BOND FUTURES: China allowed some of its biggest banks to trade bond futures for the first time since 2013, a step toward luring more investors to its government-debt market.
February 14, 2020
FOLLOW-ON STOCK OFFERINGS: The securities regulator significantly relaxed its grip on public companies’ follow-on stock offerings. Among key changes to the rules on selling additional equity, the China Securities Regulatory Commission shortened by half the lock-up period for shares placed privately and allowed companies to provide bigger discount to lure investors.
January 16, 2020
FOREIGN FIRM ACCESS: China brought forward the planned opening of its capital market by eight months, enabling access for global investment banks such as Goldman Sachs Group Inc. The firms can apply to form fully owned units to do a broad array of investment banking and securities dealing.
December 28, 2019
MARKET-LED SYSTEM: The central bank ordered lenders to adopt a new loan-pricing regime for all credit from 2020, marking an end to the previous benchmark and another step toward liberalizing the financial system.
December 23, 2019
MORE OPTIONS: China launched the first batch of options tracking the mainland’s stock market since 2015. Before the debut, investors only had options tracking the China 50 ETF, an exchange-traded fund that tracks the heavyweight SSE 50 Index.
October 25, 2019
OVER-THE-COUNTER: The CSRC unveiled plans to optimize the share offer and financing mechanism for the National Equities Exchange and Quotations platform, the country’s biggest over-the-counter market, in a move to build up a multiple-layer capital market.
July 22, 2019
STAR BOARD LAUNCH: Shanghai’s new Star board debuted, with stocks jumping an average 140% on the first day. Regulators waived rules on valuations and debut-day price limits, while the venue also welcomed companies that have yet to make a profit, as well as shares with unequal voting rights.
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With assistance from Bloomberg