BEIJING, Dec. 10 (Xinhua) -- China, a powerful engine for the world economy, pressed ahead with vigorous reform of its capital market in 2020, pumping exuberant vitality into recovery of "the world's factory".
-- Vibrant capital market aids real economy
When the COVID-19 pandemic dented global economy this year, the country churned out a series of hefty measures for capital market reform such as the registration-based corporate bond issuance and registration-based initial public offering (IPO) on ChiNext market, which altogether fueled up the development of real economy.
In the first three quarters when the world was deeply troubled by economic recession risks, China reported a positive gross domestic product (GDP) growth at 0.7 percent over the same period of 2019.
The country's capital market contributed in the first 10 months of this year as brisk as 4344.2 trillion yuan of net corporate bond financing, an increase of 1698.0 billion yuan year on year and IPO financing by non-financial companies of 702.7 billion yuan, an increase of 450.5 billion yuan year on year.
Chart I: China's direct financing by real economy entities in Jan.-Oct. in 2019 and 2020
Source: The People's Bank of China
In October of 2020, China's capital market remained a firm pillar backing up the real economy. Non-financial enterprises financed 92.7 billion yuan from IPOs, up as high as 415 percent year on year.
At the 30th anniversary of the establishment of China's capital market this year, the country's capital market has become a "fertile land" nurturing growth of real economy entities via direct financing and will provide mighty support to the post-epidemic high-quality development and upgrading of the Chinese economy.
-- China capital market reform on fast lane
In 2020, Chinese regulators resolutely advanced the capital market reforms while effectively reining in spread of the domestic epidemic.
New securities law of China empowers new bond financing spree
On March 1 of 2020, China's amended securities law, which highlights a registration-based IPO regime, formally went into effect.
Compared with the previous approval-based issuance, implementation of the new securities law established a registration-based issuance system for both enterprise bonds and corporate bonds.
Since implementation of the registration-based system, corporate bond issuers of varied types are getting more enthusiastic in bond financing, spurring more demand for bond financing in the country.
Publicized statistics showed that registered corporate bond issuance with China's Shanghai Stock Exchange and Shenzhen Stock Exchange mounted up to 512 batches, with overall proceeds to be raised at 3.467462 trillion yuan.
ChiNext hails registration-based IPO
While the mid-2019 debuted STAR market was deemed as a new mechanism to empower science and technology innovation, the ChiNext, China's Nasdaq-style board of growth enterprises, made up for the lack of the middle layer of China's capital market through the registration-based IPO reform, said analysts.
The registration-based IPO reform was materialized in four months after the release of reform plan with the first 18 registration-based IPOs conducted on ChiNext market on August 24 this year, representing a practical acceleration of China's deepening capital market reform and playing a demonstrative role for the same reform on other boards of China's A-share market, insiders say.
Under the registration-based IPO system, basic rules for stock offering, listing, information disclosure, transaction, and delisting of stocks on ChiNext have been systemically optimized, which enhanced the board's services for innovation-driven companies or startups.
By far, the ChiNext market has become a pool of innovation-driven firms. By the end of October, their average annual R&D intensity reached over five percent, and the number of high-tech enterprises and strategically emerging industries-related firms accounted respectively for 92 percent and 65 percent of the total.
Interbank bond market and exchange bond market connected
On July 19, 2020, China's central bank and securities watchdog released a circular permitting interconnectivity of related infrastructure of the country's interbank bond market and exchange bond market, allowing qualified investors to trade bonds on both of the two markets via the related infrastructure interlinking institutions.
For a long time, China's bond market has been dominated by the alleged "dual head" development where both interbank bond market and exchange bond market prospered independently. However, the "dual head" mode has pulled down the efficiency of financial services in supporting the real economy with the rapid development of bond market.
Zhou Wenyuan, vice general manager of strategic investment department of Guotai Junan Securities said that interconnectivity of the relatively divided interbank and exchange bond markets could enhance unification of the corresponding secondary markets and promote market liquidity as well.
Jin Yi, head of the fixed-income research team of Sealand Securities, held a similar view, saying that interlinking of the two markets could also reduce the primary market issuing costs and enlarge the scope of selectable bonds for investors.
Amid China's accelerating financial opening up, the interconnected interbank bond market and exchange bond market will greatly increase the attractiveness of China's bond market towards external capital.
Select Tier of China's "new third board" rolled out
China's National Equities Exchange and Quotations (NEEQ), better known as the "new third board", formally launched its Select Tier, a tier of quality firms allowing qualified companies to apply for trans-listing on China's STAR market and ChiNext market in late July.
NEEQ is currently composed of the base tier, innovation tier and select tier, which, as a component of China's multi-layer capital market, has been an important platform serving the direct financing of small- and medium-sized private enterprises in China.
In the first three quarters, financing through all sections of the NEEQ totaled 24.732 billion yuan, up 11.64 percent year on year and secondary market turnover reached 97.439 billion yuan, up 6.71 percent year on year.
Chart II: Financing situations on China's new third board in Q1-Q3
Source: China's National Equities Exchange and Quotations
-- Application of registration-based IPO on a wider scale expectable during 2021-2025
With the bustle and hustle of "the world's factory", China's economy requires stronger supports from the capital market for the real economy.
Under such circumstances, improving direct financing and constructing a more inclusive and flexible multi-layer capital market system is the key, which is vitally meaningful for speeding up formation of the new "dual circulation" development pattern and achieving development of higher quality and higher efficiency.
Yi Huiman, chairman of China Securities and Regulatory Commission (CSRC), the securities watchdog, pointed out that China needs to stably advance the information disclosure-centered registration-based IPO system in all stock markets to expand the entrance of direct financing, which will shore up direct financing in the country.
Previously in mid November, Shenzhen Stock Exchange released on its website three reports saying that it would make sound preparations for all around application of the registration-based IPOs to support more quality firms to go public.
Liu Dihuan, research director with niuniu.com, an M&A, investment and financing projects news website, said that registration-based IPO system has been applied on the STAR market and ChiNext market and on basis of related experience, conditions for whole-market application have been gradually mature and its advent is expectable. (Edited by Duan Jing with Xinhua Silk Road, duanjing@xinhua.org)
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