CHINA FINANCE AND BANKING NEWSLETTER
Vol. 2, No.1 - May,10, 2001
TOPICS THIS ISSUE:
- Domestic Stock Market to Open
- China Issues Document on Rectifying Market Order
- China to Further Open Bank Sector
- China to Further Regulate Capital Market: Official
Domestic Stock Market to Open
(May 8, 2001) Foreign investors' long wait for access to China's booming A-share markets came one step closer at the end of last month after China vowed to move much faster in allowing more institutional investors to enter its fledgling stock market.
The entry of institutional investors, both domestic and foreign players, will remain one of the top priorities on the development agenda of China's securities market, according to Laura Cha, the newly named vice-chairwoman of the Chinese Securities Regulatory Commission (CSRC).
Although not specifying the timetable for foreign access onto the fledgling market, Cha said the country would allow foreign players to set up Sino-foreign joint venture securities and fund management firms in the "not too distant" future.
According to recent deals signed between China and several other countries, foreign firms will be able to set up Sino-foreign joint venture securities fund management companies after China joins the World Trade Organization.
Although the Chinese partners would have a controlling stake for the first five years, it is thought that their foreign counterparts will later be able to expand their stakes.
Currently, almost 90 per cent of trading on the markets is by individual investors, with the remaining 10 per cent by institutional investors, such as stock houses and fund management companies.
There are only 10 fund management companies with 33 close-end funds operating on the market, which involves about 1,100 listed companies on China's two bourses.
This number is very small and there is a great deal of potential for growth compared with developed countries, where institutional investors are responsible for about 80 per cent of transactions on the stock markets.
Cha said the CSRC is due to give three planned fund management companies the final go-ahead in the very near future.
"It is a proven fact that institutional investors would stabilize the market and improve the disclosure of information on listed firms," said Anthony Neoh, chief consultant with the CSRC.
Backed by abundant and professional expertise, institutional investors could ensure better earnings for individual investors, said Neoh, adding that the move could also offset the prevailing speculative sentiment and lead to more long-term investment. He outlined measures to reduce the huge amount of currently untradable State-owned shares that lie idle outside the market and remain one of the main sectors for further growth in the stock market.
"A proportion of State-owned shares should be used to establish social securities funds," said Chen Yaoxian, former CSRC vice-chairman, who vowed that the country will establish a multi-sourced social securities fund system that could invest in the stock market in the near future.
"The fund should be managed by professional companies that have solid expertise, which would ensure good earnings," said Chen.
It is thought that foreign companies will probably soon be allowed to trade on China's securities markets, which have the potential to become very profitable.
Cha also revealed that the country is now working on plans to reduce the number of State-owned shares, although she declined to say how many companies would be involved in the first trial.
"There is one prerequisite for the reduction - that it should be undertaken in a stable way so that it does not negatively influence the market," said Neoh.
At the moment, only one-third of listed assets are tradable on China's markets. The State-owned shares that are to be released, some 53 per cent of total listed assets, could become tradable through the social securities fund, said Neoh.
As for the remaining 13 per cent of shares owned by other State-owned companies, Neoh said they could be traded by allocating them to shareholders.
He forecasts that there will soon be more initial public offerings of large companies in a move to increase the total fund pool on the market.
Authorities are considering introducing a Qualified Foreign Institutional Investors System, which would assist foreign institutional investors to enter the market.
The system, if launched, would allow the investors to gradually enter and ensure a safe opening to the world market.
Apart from introducing more funds, new market-oriented products should also be launched on the market, said Chen Yaoxian.
Source: Business Weekly, Author: Huo Yongzhe
China Issues Document on Rectifying Market Order
The Chinese government has recently issued a document intended to streamline the domestic market.
The "State Council's Decisions on Rectifying and Standardizing Market Economic Orde" is meant to be a guide for the Chinese government as it reforms its market system.
According to the document, China will take a tough stance in the coming five years to crack down on the sales of counterfeit goods, smuggling, and other illegal activities; to rectify the real estate, financial and tourism markets; and to standardize the operation of intermediaries.
The ailing sectors that have caused widespread public concern, such as food and medicine, are highlighted in the document.
Tax evasion and tax fraud should be wiped out, the document says, while stressing the necessity of fighting local protectionism.
Within one year, the offenses that seriously harm the market order should be firmly curbed and the criminals brought to justice.
The document also notes that the laws and regulations should be further improved and the law enforcement should be strict to help ensure market order.
Source: Xinhua News Agency
China to Further Open Bank Sector
(May 8, 2001) China will gradually eliminate the preferential treatment given to foreign-funded banks to ensure fairer competition between Chinese and foreign banks, Wu Xiaoling, vice-president of the People's Bank of China, the country's central bank, said last week.
China will also step up the opening of the banking sector to increase the presence of foreign banks in China, Wu noted at the recent Forum on International Investment in China.
Currently, foreign banks operating in China enjoy preferential treatment compared to domestic banks in income tax rates, foreign exchange deposits and loan rates, financing of foreign currency and inter-bank lending terms.
To stimulate the healthier development of China's banking sector and sharpen the competitive edge of domestic banks in the face of intensified competition, China will gradually eliminate these privileges to ensure fair play, she said, without disclosing a timetable.
As for the opening process, she said foreign-funded banks would be able to provide foreign currency services to Chinese enterprises and citizens when China enters the World Trade Organization (WTO).
They will be able to provide renminbi services to enterprise customers two years after China's WTO entry and renminbi businesses to individual customers after another three years. Five years after China's WTO entry, foreign banks will not be limited in geographical region when conducting renminbi businesses.
Wu also talked about the general principles that would govern the liberalizing of interest rates over the next several years.
"The foreign currency rate should be liberalized before the renminbi rate; rural before urban areas; loans before deposits; and flotation of the rate before total liberalization."
Meanwhile, Wu said it is also important to deepen the reform of domestic banks to better prepare them for increased competition.
The State-owned commercial banks will be transformed into State-owned companies with corporate governance. Some will even be converted into shareholding companies.
Wu said the central bank will increase the capital assets of these banks through various methods including listing on the stock market and the introduction of shareholders.
They will also be required to lower their non-performing assets ratio through stringent internal controls and business innovation, she added.
"In two years time, State-owned commercial banks will be told to release information on their non-performing assets and financial matters," she said.
And in three to four years, all financial institutions that handle deposits will have to set up information release systems as transparent as those required of listed companies.
Source: Business Weekly, Author: Wang Ying
China to Further Regulate Capital Market: Official
(May 9, 2001) China's securities regulatory commission will enhance law enforcement in the coming two years to protect investors, top regulator Zhou Xiaochuan said Tuesday in Hong Kong.
There will be many new opportunities and challenges in China's capital market, the chairman of the China Securities Regulatory Commission (CSRC) said at a seminar on Asia and global finance held during the Fortune Global Forum 2001, which opened here Tuesday.
China's capital market is still in the initial stage, with more than 1,100 firms listed on the two stock exchanges. Last year the two bourse reported a combined turnover of 25 billion yuan (about three billion U.S. dollars).
As a new regulatory body, the CSRC has a lot to learn, and China's young capital market needs to develop more financial instruments such as the high-tech trading platform and the bond market, he said.
The CSRC will cooperate with other units to exercise supervision over listed companies and market operations, upgrade the standards set for accounting firms, and promote financial institutions to provide more financial products, Zhou said.
He stressed it is a set policy of the State to encourage large enterprises to go public overseas so as to raise funds from the overseas market and improve their management.
Source: People's Daily
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