Challenge and Development Structure & Supervision of China Securities Markets ( Summarized By Research Team of CSRC) Since the 1980s, with the further-up of reform and opening policy, the development of market economy, and the establishment of Shanghai Stock Exchange and Shenzhen Stock Exchange, China securities market has grown rapidly and made outstanding achievements. By the end of 2001, there were altogether 1160 domestic listed companies and 66.5 million security accounts. The total market value topped RMB4352.2 bn(usd 525.6bn), accounting for 46% of total of GDP, surpassing that of Singapore (USD192.9bn), Taiwan(USD311.3 bn) and South Korea(USD 306.3 bn) and matching with that of Hong Kong( USD506.1 bn) or Italy(USD521.2bn). In past 10 years, altogether RMB866.3 bn(usd104.7 bn) has been raised from domestic and overseas securities markets. Meanwhile, China security market has always attached great importance to the construction of legal system and techniques, and gradually established the system of laws and regulations for securities, futures market, which, in its structure, has Corparate Law and Secuirities Law as its core, the administrative regulations as its supplements, and departments rules as its body. Moreover, the electronization has been integrated into each aspect of China security market, including dealing, clearing, communicating, information and auditing, etc., and the main technical means is among the first rate of the world.
Recently, China securities market emphasized on the reform and regulation of market, mainly focusing on: changing the concept of supervision; giving priority to the protection of the investors lawful rights and benefits; carrying out the marketing reform and qualifying issuing system; preliminary establishment of the delisting channel of listed companies in accordance with the principle of double way circulation and related requirements of Company Law; reinforcing the implementation of laws to smash the fraud in securities market; strengthening the corporate governance; advocating the corporate culture of honesty and credit; integrating of legal system: introducing the civil lawsuit; practice of reform in commission system; laying a solid foundation for the marketing reform. In the aspect of market structure, China securities market also made remarkable achievements. The past 10 years witnessed great changes: The securities types are more abundant than ever before and more institutional investors are getting involved. The corporate structure of listed companies is improving, and more intermediaries are growing with the market. The structure system of the securities market is developing towards integration. Of course, as a merging market, it can be understood that China securities market is not that rational in its marketing structure. As to the securities types, China securities market provides products, including: treasure bonds, stocks, corporate bonds, convertible bonds,
close-ended funds, open-ended funds. The stocks dealing accounts for 93% of total amount of trading products, which reflects the problem of single- structure; Treasure bonds and convertible bonds only account for 2% of total; Funds trading accounts for 4 %, which is still at its preliminary stage. Corporate bonds were once hot in 1980s, and declined to the current 2% of total. Other products like municipal bonds, capital securitization bonds are not yet introduced into the market. Only a small amount of commodity futures are adopted in the commodities market, while the financial futures products are not yet introduced. In this aspect, a mature securities market not only boasts of abundant trading products but manages the balanced development. For instance, in first 9 months of 1998, the US securities market raised USD 1869 bn from newly issued securities, among which, the US government bonds accounted for 30%; corporate bonds accounted for 22%; stocks accounted for 22%; capital bonds accounted for 26%. As for the investors structure of the market, China security market featured as individual investors- dominated in its preliminary stage. Those individual investors formed the main body of securities investment. By the time of the middle of 1990s, China government took measures to cultivate and develop the institutional investors. Those measures included: to develop close-ended securities investment fund, to give licenses to listed companies, SOEs, State holding enterprises to participate the securities market, and permit the insurance companies to participate indirectly in the
market through buying the securities funds. On the whole, the institutional investors only account for a small proportion of total. Their accounts are about 5-6% of total investors accounts and hold 15% of total stock shares. While in the US, institutional investors held 51.8 % of total stock shares(excluding the overseas institutional investors) and families held 39.1% of total. As for the structure of listed companies, the trade structure of China securities market has transferred from property, commerce, and comprehensive-based business in its early time to those foundation industries and backbone industries of steel, metallurgy, ports, petrol-chemistry, electronics, automotive, power, energy, etc. of current stage. By the end of 2000, the percentage of the industrial listed companies rose from 55.7% in 1994 to 64.89% in 2000; that of the Commerce and property companies declines from 14.4% and 8.6% in 1994 to 8.64 % and 2.48% respectively in 2000. The structure of listed companies are still unbalanced, which is mostly reflected in that: First, financial companies only account for 0.4% of total listed companies, while those of New York Stock Exchange (NYSE) accounted for 38.4% of total. Secondly, private-run companies account for a small proportion of total. By the end of 2000, there were 60 private-run companies got listed directly or indirectly, accounting for only 5% of total. Thirdly, China securities market falls into the catalogue of close-ended domestic market. Most listed companies are SOEs. While by the end of 2000, London Stock Exchange
had 501 foreign listed companies, accounting for 17.1% of total. The overseas companies in NYSE owned total market value of one third of the whole market. As for the structure of intermediaries, particularly the securities companies, by the end of 2001, there were over 120 securities companies, 96 investment consulting bodies, 106 accounting firms and 304 lawyer s firms involved in securities or future business in China. More than 150 thousand employees worked in these institutions. Take securities company for instance, by the end of 2002, there were more than 120 securities companies, among which 43 were big ones with registered capital of more than RMB 100 million(usd12.1million), whose total registered capitals hit RMB80.8 billion(usd9.8bn). In spite of this, the situation of small capital scale and same business nature did exist. In the aspect of capital scale, business concept and inner management, domestic securities companies still have a long way to go, comparing with overseas investment banks. As for the multi-level structure of securities market, a mature market should gradually establish the multi-level securities market system in accordance with the different scale of issuers and different anti-risk capacity of investors. China securities market is now far from mature. China now has two main board markets in Shanghai and Shenzhen. The two markets bear no essential difference in the qualification of getting
listed. Since 1999, Chinese government planned to launch the second board in Shenzhen. Due to many reasons, this plan is delayed. As for the supervision system, since 1997, China has gradually established the nationwide centralized securities and future supervision system. China Securities Regulatory Commission (CSRC), as the ministry-level institution directly under the State Council, acts as the regulating body of the national securities and future market. CSRC has established 9 Regional Regulatory Offices in 9 key cities, 2 branches directly subordinating to CSRC, 25 Local Regulatory Representatives Offices, 9 Enforcement Bureaus in 9 key cities, 2 securities markets in Shanghai and Shenzhen. Shanghai Futures Exchange, Zhenzhou Commodities Exchange and Dalian Commodities Exchange are directly under CSRC. Of course, it is accepted that many problems still exist in the securities supervision. Especially comparing with those mature markets, China s securities supervision remains large room to make progress. Firstly, there still lack rules and regulations to protect the benefits of small & medium sized investors. The rules and supervision have limited effects against the unlawful practice. Secondly, the guiding principle of supervision needs to be further carried out. The supervision lacks beforehand planning and systemization, which usually react passively in response with the market performance. Thirdly, the 3-level supervision system needs to be further
integrated. The shortage of supervising personnel becomes bottleneck of the supervision function and efficiency. Fourthly, the self-discipline administration of exchange houses and the Association of Securities have functioned well and the supervision of public opinions should be strengthened. Fifthly, the means to supervise is in serious shortage. CSRC is not entitled to necessary function of legal inquiry. The police and judicial departments lack experience in handling the cases in securities market. Good cooperation between third parties can not realized. The auditing effects are influenced to some extent. With China s accession to the WTO, China securities market is now facing severe challenge as well as opportunity. It is of vital importance for China securities market to seize the precious opportunity, deepen the reform, integrate the market structure, strengthen the supervision, and help realize the healthy development of China securities market in a open and standardized circumstance. To construct the securities market with sound functions and standardized development. The core problem in the development of China s securities market is the unbalanced structure: market structure, investment products structure, investors structure, share-holding structure of listed companies, etc.. Therefore, the development of the early 21 st century should aim at bettering the structure and strengthening the function and attach utmost importance to improve the depth, width and levels of securities market.
(1) To integrate the market structures and realize the multi-level market system. 1. To speed up the preparation work for second board; 2. To prompt the electronic trading board, and form the multi-level market structure; 3. To realize the nationwide link and unification of the Exchange House of property rights in different parts of the country and provide financing support for small & medium-sized enterprises. (2) To make efforts to improve the products structure and develop the diversified securities products. Firstly, the current corporate bonds market is under duel management and regulation of China Planning Commission and China Securities Regulatory Commission. The current system needs to be clarified and reformed towards standardization. Secondly, seizing the opportunity of the policy of debt to shares, and the policy that financial assets management companies deal the bad assets, China securities market should speed up the legislation of the securitization of capital, to ensure the capital securitization bonds can maintain healthy grow-up in China. Last but not least, based on the development of commodities future market, China securities market should bring the financial future products, especially the stock index future and interest rate future into birth. (3) To cultivate institutional investors and realize the sound investors structure. The investment fund should be improved to a larger scale. More open-ended funds should be established and joint venture investment fund management fund will be established as test. Under the premise of security,
the retirement pension will be encouraged to enter securities markets. Gradually, the institutional investors are mainly composed of securities investment funds, insurance funds, and pension funds. (4) To speed up the steps for banks, securities and insurance institutions to get listed, integrate the structure of listed companies, and promote the standardization of securities companies. Getting more banks, securities companies and insurance companies listed will help, in one hand, integrate the company structure of China securities market, improve the proportion of financial companies in total listed companies; on the other hand, enlarge the capital of banks, securities and insurance companies through capital market, and integrate the corporate governance to improve the core competence. Chinese government is composing the related laws and regulations to integrate the preparation work for China s accession to the WTO, such as: 1. To revise the Regulatory Provisions for Securities Exchanges: Securities Exchange can accept special member and give definition about the qualification and related rights and liabilities of special member; 2. To formulate the Tentative Provisions for Joint Venture Fund Manage Company and the Regulatory Provisions for Joint Venture Securities Companies, and define the qualification of sponsors,
procedure and operation management. Besides the above, China securities market will take a serial of open-up measures: 1. All-round open-up of B share market. B share market will serve as the all-round trial market. The foreign investors will be permitted to enter A share market with reference to their performance in B share market; 2. Using the experience of QFII system in overseas market as reference, QFII system will be considered to introduce some qualified institutional investors from overseas markets; 3. To encourage overseas enterprises to enter CDR market, and create circumstance for overseas enterprises to go listed in domestic exchange house. There are four aspects to do in order to establish efficient and impartial securities management system, such as: 1.To integrate the legal system and provide legal enforcement for securities supervision. 2.To adjust the concept of supervision, and emphasize the supervision work centered with information disclosure. 3.To establish the quasi-judicial auditing system, and reinforce the auditing means. 4.To realize the internationalization of corporate governance and accounting standards, and lay solid foundation for securities supervision.