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Xinhua Silk Road
Economy

Chinese capital market propels upgrading of "Made in China"

April 29, 2020


Abstract : Chinese capital market, with continuous reforms,has become a powerful engine of the country's resource allocation and integration, propeling China's economic transformation and upgrading.

BEIJING, April 29 (Xinhua) -- Chinese capital market, with continuous reforms, has become a powerful engine of the country's resource allocation and integration, propeling China's economic transformation and upgrading.

With the Chinese capital market lending increasing support to the nation's enterprises, especially start-ups and high-tech firms, "Made in China" is presenting a strong growth momentum.

Sci-tech innovation board spurs rapid growth of high-tech firms

Data from the Shanghai Stock Exchange (SSE) showed that 98 companies by far have been listed on the sci-tech innovation board (STAR market) of SSE, with market value totaling 1.32 trillion yuan, circulation market value up to 206.488 billion yuan, and average price-earnings ratio registering 89.78.

The pilot registration-based initial public offering system of the sci-tech innovation board has greatly promoted the development of high-tech enterprises since it started trading on July 22, 2019.

Among the total market value of the listed companies on the sci-tech innovation board, 56.4 percent come from the information technology sector, and 21.4 percent come from the health care sector, data from Industrial Securities (601377.SH) showed.

Industrial Securities data also showed that the research and development (R&D) expenditure of these companies accounts for 11.1 percent of their receivables on average.

In March this year, the China Securities Regulatory Commission (CSRC) and SSE issued documents successively to clearly define the sci-tech attributes of sci-tech firms which include three conventional indicators and five exceptions.

The three conventional indicators are the proportion of the R&D input amount or input in the operating income, patents for inventions, and operating income or operating income compound growth rate, focusing on enterprises' R&D input, sci-tech outcomes and their actual impacts on enterprise operation.

The five exceptions involve international leading business, national sci-tech progress award, national key sci-tech projects, import substitution and 50 patents for inventions.

A study from Shenwan Hongyuan Securities showed that about 80 percent of the 94 sci-tech innovation board-listed firms as of April 8 have met the three conventional indicators before listing, and 83 percent of these companies have met at least one of the exceptions.

The study also showed that companies meeting the "import substitution of key parts and components" are in a relatively large number, indicating that sci-tech innovation board-listed companies take a leading role in import substitution and will promote the transformation and upgrading of China's industrial chain.

On April 20, National Silicon Industry Group Co., Ltd. (NSIG, 688126.SH), one of the largest semiconductor silicon wafer makers in China, was listed on the sci-tech board.

Supported by the Chinese capital market, leading domestic silicon wafer makers will unleash huge industrial benefits.

M&As drive transformation and upgrading of traditional firms

In addition to providing a financing platform for high-tech enterprises, the Chinese capital market also pushes up the transformation and upgrading as well as restructuring of traditional enterprises in China.

On March 20 this year, CSRC rectified regulations and related supporting rules on major asset restructuring and acquisition management of listed companies, so as to lift the supervision efficiency and improve the quality of listed companies.

Statistics showed that from January 1 to April 20 this year, 425 listed companies have disclosed 480 mergers and acquisitions (M&As) and reorganization plans, five of which involve restructuring and listing.

CITIC Securities (600030.SH) pointed out that driven by the new rules on reorganization and refinancing, A-shares are likely to usher in a new round of M&As, and against the backdrop of registration system reform, industrial M&As will become the mainstream.

On April 1 this year, China CSSC Holdings Limited (CSSC Holdings, 600150.SH), a large shipbuilding company headquartered in Shanghai, announced that it has completed equity restructuring of five subsidiaries, acquiring 100 percent of equity from Jiangnan Shipyard (Group) Co., Ltd., 36.2717 percent of equity from Shanghai Waigaoqiao Shipbuilding Co., Ltd., and 21.4598 percent of equity from Chengxi Shipyard Co., Ltd..

On January 10 this year, CSSC Holdings got CSRC's approval to buy assets by issuing shares, involving a total deal value of 37.4 billion yuan.

This is only one of the cases that Chinese enterprises have optimized the industrial distribution through the capital market.

Data from the Shenzhen Stock Exchange (SZSE) showed that a total of 1,628 M&A and restructuring transactions were finished in SZSE in 2019, with the total transaction value up to 1.08 trillion yuan, accounting for 55.47 percent and 54 percent of the entire market, respectively.

Capital market profoundly affects China's high-quality economic growth

Actually, the Chinese capital market is playing an increasingly crucial role in propelling the development of China's real economy as well as its high-quality economic growth.

Recently, the Central Committee of the Communist Party of China (CPC) and the State Council jointly issued a document which requires efforts to promote market-based allocation of capital factors, improve the basic system of the stock market, expedite the development of the bond market, increase the supply of effective financial services, and expand financial openness.

The Financial Stability and Development Committee under the State Council proposed to make good use of the pivotal role of the capital market at a meeting held recently.

The moves indicate that the status and importance of the capital market are rising, and efforts should be made to speed up the comprehensive and profound reform of the capital market, so as to support the development of the real economy, said Dong Dengxin, head of the research institute of finance and securities with Wuhan University of Science and Technology (WUST).

Pushed strongly by the capital market, the Chinese enterprises are poised for more consolidations, and the Chinese economy will take off again. (Edited by Gu Shanshan with Xinhua Silk Road, gushanshan.1987@163.com)

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Keyword: capital market Made in China

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