• Comment(141)
  • 2024-07-15
  • News

Strengthening the Foundation for Coordinated Investment and Financing Development

Coordinated development of investment and financing is a necessary requirement for the high-quality development of the capital market and an important means to enhance the inherent stability of the capital market. Recently, at the 2024 Financial Street Forum Annual Conference, Wu Qing, the chairman of the China Securities Regulatory Commission (CSRC), proposed to further solidify the foundation of coordinated development of investment and financing from three aspects: achieving overall balance in quantity, continuous improvement in quality, and effective checks and balances in rights and responsibilities.

Achieving Overall Balance in Quantity

Investment and financing are two sides of the same coin, complementing and promoting each other. A mature capital market is not only a platform for high-quality enterprises to obtain financial support but also ensures that investors receive stable returns.

From a practical perspective, there is an imbalance in the investment and financing functions of China's capital market. Since 2020, more than 1,500 new listed companies have been added nationwide, and the financing amount has been the highest in the world for two consecutive years in 2022 and 2023. However, during the same period, the main stock indices have been relatively low, and the sense of gain for ordinary investors needs to be strengthened.

Advertisement

To find a balance between investment and financing and better play the role of the capital market as a hub in economic development, the key is to achieve overall balance in quantity. Wu Qing stated that it is necessary to accelerate the implementation of guidelines for medium and long-term capital entering the market, vigorously develop equity-based public funds, adopt differentiated strategies to unblock the pain points and difficulties in medium and long-term capital entering the market, and build a policy system that supports "long-term capital for long-term investment."

Recently, multiple parties have been continuously injecting liquidity into the capital market, enriching the market's "long-term capital" pool. On October 18th, two innovative monetary policy tools supporting the development of the capital market, namely the securities, fund, and insurance company swap convenience and stock repurchase and increase re-lending, were officially launched. On October 20th, 23 listed companies issued announcements stating that the company or controlling shareholders had signed loan agreements or obtained loan commitment letters with banks, and would use loan funds for repurchases or increases, marking the official landing of the first batch of repurchase and increase loans. On October 21st, the People's Bank of China stated that it had conducted the first operation of the securities, fund, and insurance company swap convenience, with an operation amount of 50 billion yuan.

Shen Juan, the chief analyst of Huatai Securities, said that the introduction of these two structural monetary policy tools is of great significance to the development of the capital market. They will effectively enhance the capital acquisition and stock increase capabilities of participating institutions, the repurchase and increase capabilities of listed companies, inject more stable funds into the capital market, help smooth market fluctuations, and enhance the inherent stability of the capital market.

To achieve overall balance in quantity, Wu Qing stated that efforts should be made to implement various measures for the capital market to do well in financial "five major articles." Further improve the coordinated development mechanism between primary and secondary markets to make the market financing scale and pace more scientific and reasonable.

Industry insiders believe that further improving the coordinated development mechanism between primary and secondary markets may mean gradually achieving the normalization of IPOs. Some time ago, when the market was operating at a low level and trading sentiment was low, the pace of IPOs and additional financing was appropriately slowed down, which could reduce the impact of equity financing on the liquidity of the secondary market. As the market trading enthusiasm gradually heats up and investor confidence warms up, maintaining the normalization of new stock issuance scientifically and reasonably on the basis of fully considering the bearing capacity of the secondary market will help restore the stock market's financing function and better promote the coordinated balance of investment and financing.

Promoting Continuous Improvement in QualityListed companies are the foundation of the market and the source of value creation. To strengthen the coordinated development of investment and financing, it is essential to focus on improving the quality of listed companies, which is the "bull's nose" of the issue. We should guide and support listed companies in using various capital market tools such as mergers and acquisitions to enhance their core competitiveness, implement market value management responsibilities, and continuously improve investment value.

To further stimulate the vitality of the merger and acquisition market, in September of this year, the China Securities Regulatory Commission (CSRC) issued the "Opinions on Deepening the Reform of the Listed Company Mergers and Acquisitions Market." From six aspects: aiding the development of new qualitative productive forces, increasing support for industrial integration, enhancing regulatory tolerance, improving payment flexibility and review efficiency, elevating the service level of intermediary institutions, and strengthening regulation in accordance with the law, the CSRC is promoting industrial integration and quality and efficiency enhancement with greater force.

A series of merger and acquisition projects are being carried out in an orderly manner, and a batch of innovative, high-quality industrial merger cases are being implemented one after another, especially cross-border mergers seeking industrial transformation and upgrading, and creating new growth momentum.

Taking Nanhua Instrument as an example, on October 11th, Nanhua Instrument announced that the company is planning to acquire control of Jia De Li by paying cash to purchase 36% to 45% of its shares. Regarding the purpose of this acquisition, Nanhua Instrument stated that after the completion of this transaction, the company's business will expand into the digital and intelligent cleaning equipment industry, which is expected to form a second growth curve and is conducive to enhancing the company's comprehensive competitiveness.

Chen Gang, the chief strategy analyst at Dongwu Securities, believes that making good use of mergers and acquisitions as an important tool can help achieve a win-win situation for industrial resources, local finance, and the capital market, and achieve high-quality development. From an industrial perspective, mergers and acquisitions that conform to industrial logic can horizontally strengthen scale effects and increase industrial concentration, vertically improve vertical integration layout, enhance synergy, and strengthen industrial resilience, comprehensively improving the international competitiveness of a country's industry. From the perspective of finance and regional economy, mergers and acquisitions can improve the return on investment of state-owned enterprises, help local finance transformation, assist in integrating and revitalizing local enterprises, and promote the transformation and upgrading of the regional economy. From the perspective of the capital market, injecting high-quality assets into the capital market through mergers and acquisitions is expected to reshape the valuation of listed companies and boost investor confidence.

Market value is one of the key indicators of the capital market, containing the intrinsic value of listed companies. In September of this year, the CSRC drafted the "Guidance for Listed Companies No. 10 - Market Value Management (Draft for Comments)," requiring listed companies to legally manage market value and enhance investor returns.

Listed companies actively respond and carry out special actions for "double improvement of quality and return" or "improving quality and efficiency, and focusing on returns." Dividends have reached new highs, and the number of shareholder increases and stock buybacks has increased significantly. As of the end of September, more than 95% of listed companies have held performance explanation meetings this year, 663 companies have announced mid-term dividends, with a total dividend amount of 533.7 billion yuan, and more than 1,500 companies have actually implemented share buybacks totaling more than 100 billion yuan.

"To improve the investment value of listed companies and strengthen market value management, listed companies must take on their responsibilities." Tian Lihui, a professor of finance at Nankai University, stated that listed companies and related parties must enhance their awareness of compliance, grasp the legal boundaries of listed company market value management, and not carry out illegal and irregular behaviors such as market manipulation and insider trading in the name of market value management.

Strengthening the Effective Balance of Rights and Responsibilities

Recently, several listed companies have disclosed plans to reduce holdings, which has attracted the attention of investors."From an objective data perspective, whether it's the past year or since late September, there has been no phenomenon of 'herding' in share reductions or a large number of violations in share disposals by listed companies. In response to individual companies' violations in share disposals, the China Securities Regulatory Commission (CSRC) and the stock exchanges have taken immediate action and dealt with the issues seriously. Share reduction is a shareholder's right, and normal share reduction should be supported, but any violations in share reduction or circumventing the reduction process must be resolutely dealt with, requiring the purchase back, surrender of price differences, and the assumption of corresponding responsibilities." Wu Qing stated that it is necessary to achieve an effective balance of rights and responsibilities.

In the view of industry insiders, achieving an effective balance of rights and responsibilities means making financing more standardized, making investments more secure, and better aligning rights and obligations. This requires clarifying the rights and responsibilities of all parties involved in investment and financing. On one hand, through effective regulation in accordance with the law, it ensures that listed companies and their major shareholders fulfill their duties. On the other hand, it is necessary to strengthen investor protection and build a more fair, efficient, and transparent investment environment.

"Major shareholders, directors, supervisors, and other 'key minorities' of listed companies have specific obligations and special responsibilities in the company's operations and development. While enjoying basic rights such as share reduction, they should earnestly safeguard the interests of the company and minority shareholders, consciously regulate their share reduction behavior, and not evade share reduction restrictions through any illegal means such as technical divorce or securities lending and borrowing." Tian Lihui stated.

In fact, the illegal share reduction by shareholders and directors of listed companies has always been a focus of regulatory attention. In May of this year, the CSRC issued the "Interim Measures for the Management of Share Reductions by Shareholders of Listed Companies" and related supporting rules, continuing to strictly regulate the share reduction by major shareholders and completely blocking various channels for circumventing share reductions. According to incomplete statistics, to date, the CSRC and local securities regulatory bureaus have issued more than 150 penalty notices for violations in share reductions this year, involving behaviors such as violating commitment to reduce shares, reducing shares beyond the proportion, and failing to fulfill disclosure obligations after reducing shares.

"Next, regulation must continue to maintain a 'zero-tolerance' stance, strengthen the full chain of regulation including issuance and listing, information disclosure, and share reduction, and strengthen the necessary constraints on the behavior of major shareholders and other 'key minorities', making financing more standardized and investment more effective, and further shaping a good market ecosystem." Tian Lihui stated.

Investors are the foundation of the market, and to achieve an effective balance of rights and responsibilities, it is also necessary to increase investor protection and enhance the sense of gain for investors. At present, investor protection still faces various illegal activities such as financial fraud, market manipulation, and insider trading. It is necessary for all types of business entities to take their responsibilities and form a joint force to weave a tight network of investor protection. Cheng Hehong, the Chief Lawyer of the CSRC and Director of the Legal Affairs Department, stated at the 2024 Financial Street Forum Annual Meeting that maintaining the legitimate rights and interests of investors must be done by regulating the market activities of important entities such as securities issuers, listed companies, securities and futures operating institutions, and securities and futures fund managers in accordance with the law, giving full play to the positive role of all parties, and strengthening legal protection for investors, especially small and medium investors, from the source.

Leave a Comment