SSE: Prospects for China's Capital Market Development in a New Historical Period

　　The 18th National Congress of the Communist Party of China (CPC) has made a series of important strategic deployments for the reform and development of China's economic and social development, providing unprecedented new opportunities for the development of the Chinese capital market. For the capital market, it is particularly important to maintain confidence, discern opportunities, and seize opportunities. The latest research report released by the Capital Market Research Institute of the Shanghai Stock Exchange helps us clarify the current development coordinates of China's capital market, understand and grasp the development opportunities in the coming period, and touch upon the future within our reach.
　　In recent years, with a series of reforms and innovations, China's capital market has achieved remarkable achievements. The degree of legalization, openness, marketization, and internationalization of the capital market has significantly improved, rapidly narrowing the gap with mature markets, and the capital market's ability to serve the real economy has been significantly enhanced. On the occasion of the successful convening of the 18th National Congress of the CPC, the Chinese economy will enter a new round of rapid development, providing an unprecedented new opportunity for the development of China's capital market, and China's capital market will usher in a new spring.
　　I. Achievements in the Development of China's Capital Market in the Past Decade
　　Since the establishment of the Shanghai and Shenzhen Stock Exchanges in 1990, and especially in the past decade of the 21st century, China's capital market has made breakthroughs through exploration and innovation, achieving remarkable achievements.
　　First, the scale of the capital market has ranked among the top in the world. At the end of 2002, the Shanghai and Shenzhen stock markets only had 1,223 listed companies, with a total market capitalization of less than 3.8 trillion yuan. After ten years of development, as of November 12, 2012, there were 2,494 listed companies in the Shanghai and Shenzhen markets, double the number at the end of 2002, with a total market capitalization of 21.3 trillion yuan, nearly five times the level at the end of 2002. In the global market capitalization ranking of the World Federation of Exchanges (WFE), China's mainland capital market has risen from 13th place in 2002 to the current third place, second only to the United States and Japan, in line with China's ranking as the second largest economy in the world.
　　Second, a multi-tiered capital market system is increasingly being improved. After years of unremitting efforts, China has initially formed a multi-tiered capital market system mainly composed of the main board, the small and medium-sized board, the ChiNext board, and the over-the-counter trading system, providing strong impetus for the sustained and rapid development of the real economy. As of November 12, 2012, there were 1,438, 701, and 355 listed companies on the main board, small and medium-sized board, and ChiNext board of the Shanghai and Shenzhen markets, respectively; and thousands of companies were listed on regional equity transfer markets and property rights trading markets.
　　Third, the ability of the capital market to serve the national economy is continuously improving. Over the past decade, China's capital market has made significant contributions to establishing a modern corporate system and supporting the development of the real economy, effectively promoting economic transformation and changes in the mode of development, accelerating the concentration of social resources towards advantageous enterprises. A large number of state-owned and private enterprises have achieved improvement and strengthening and industrial restructuring through restructuring and mergers and acquisitions, becoming prominent industry leaders at home and abroad, and their representative role in the national economy is increasingly enhanced. As of November 12, 2012, the Shanghai and Shenzhen stock markets had raised a total of 4.88 trillion yuan. From 2006 to 2011, 143 listed companies implemented major asset restructuring for industry integration, with a transaction amount of 757 billion yuan.
　　Fourth, the internationalization of the capital market has steadily improved. Since 2002, the internationalization of the capital market has significantly improved, achieving many positive results. In terms of financing internationalization, a cumulative 172 companies (excluding delisted companies) have issued H shares, raising US$178.7 billion from overseas. In terms of investment internationalization, the total investment quota for Qualified Foreign Institutional Investors (QFII) is US$80 billion; the net asset value of Qualified Domestic Institutional Investor (QDII) products is approximately 57.9 billion yuan. In terms of the internationalization of operating institutions, 13 joint venture securities companies and 41 joint venture fund companies have been established.
　　Overall, in the past decade, China's capital market has made tremendous progress in many areas, the market mechanism and market environment have continued to improve, and the gap between China's capital market and mature markets is continuously narrowing.
　　II. Development Opportunities for China's Capital Market in the Next Decade
　　Recently, the report of the 18th National Congress of the CPC has put forward specific strategic deployments for China's economic development and reform and opening up. In the next ten years, adhering to the path of new industrialization, informatization, urbanization, and agricultural modernization, promoting the deep integration of informatization and industrialization, the benign interaction between industrialization and urbanization, and the mutual coordination between urbanization and agricultural modernization, promoting the synchronized development of industrialization, informatization, urbanization, and agricultural modernization, accelerating the improvement of the socialist market economic system, accelerating the transformation of the economic development mode, and striving to raise the vitality and competitiveness of economic development to a new level. These strategic deployments will propel China's economy into a new round of rapid development, ushering in a new development period for China's capital market and providing an unprecedented new opportunity for the coordinated development of China's real economy and capital market.
　　Opportunity 1: Strategic Adjustment of Economic Structure Continuously Drives Capital Market Development.
　　The report of the 18th National Congress of the CPC clearly points out that promoting the strategic adjustment of the economic structure is the main direction for accelerating the transformation of the economic development mode. Firmly grasping the solid foundation of developing the real economy, implementing policies and measures that are more conducive to the development of the real economy, strengthening demand orientation, promoting the healthy development of strategic emerging industries and advanced manufacturing industries, accelerating the transformation and upgrading of traditional industries, promoting the development and growth of the service industry, especially modern service industries, and rationally planning the construction of infrastructure and basic industries.
　　In the process of strategic adjustment of the economic structure and transformation of the economic development mode, the capital market has great potential. As an important platform for optimizing resource allocation, the capital market plays an irreplaceable positive role in guiding investment and promoting the transformation of the economic development mode, especially in promoting economic transformation and the development of emerging industries. In the capital market, the investment value of companies dominates the flow of capital. With the help of price signals in the capital market, it is possible to quickly gather a large amount of funds, opening up channels for incremental funding sources for structural adjustments, and effectively guiding various factors of production and economic resources to core areas and policy-supported areas, achieving a comprehensive and organic combination of institutional advantages, talent advantages, policy advantages, and economic resources in capital-intensive areas, forming a synergistic effect of resources, expanding space for economic transformation, promoting the regionalization and internationalization of enterprises, guiding the orderly transfer of industries, and promoting structural adjustment and industrial upgrading, achieving optimal resource allocation, and promoting the sustainable development of the national economy.
　　Opportunity 2: Urbanization, New Industrialization, and Agricultural Modernization Continuously Inject Vitality into Capital Market Development.
　　In the process of urbanization, large-scale infrastructure construction needs to be carried out. The capital market can support qualified enterprises in infrastructure, public utilities, and energy sectors through equity financing, and can also help raise funds through bond issuance, dedicated projects, and asset securitization.
　　In the process of promoting industrialization, especially new industrialization driven by informatization, it is necessary to continuously introduce new technologies and equipment and promote technological transformation of traditional industries and mergers and acquisitions of advantageous enterprises. To achieve this transformation, it is necessary to better utilize the capital market platform, give full play to the functions of mergers and acquisitions, investment and financing, and resource optimization, and promote the improvement of total factor productivity and industrial concentration, providing an inexhaustible source of power for industrialization.
　　Modern agricultural production includes many links such as product storage, transportation, and processing. Modern agriculture needs the support of a modern capital market. At present, China's agriculture is still highly dispersed overall, and there is an urgent need to support qualified modern agricultural enterprises to go public for financing and mergers and acquisitions, to grow bigger and stronger, and to drive the entire agricultural production.
　　Opportunity 3: The Development of Small and Medium-sized Enterprises and Innovative Enterprises Expands the Growth Space of the Capital Market.
　　Currently, small and medium-sized enterprises (SMEs) are the backbone of the national economy. Accounting for 99% of the total number of enterprises in China, SMEs contribute 50% of tax revenue, create 60% of the gross domestic product (GDP), achieve 70% of innovation results, and solve 80% of urban employment issues. However, the problem of financing difficulties for SMEs, especially small and micro enterprises, has not been effectively resolved for a long time. SMEs lack founding capital or long-term debt financing, and their inherent uncertainty and asset-light characteristics make it difficult for them to obtain sufficient support from bank loans. Therefore, it is necessary to rely on a multi-tiered capital market to provide diverse direct financial services to small and micro enterprises through various forms.
　　China is now the world's largest industrial country, but its innovation and creativity capabilities are weak. Much of its production is at the low end of the industrial chain, lacking independent and innovative enterprises. Therefore, it is necessary to implement an innovation-driven development strategy to enhance original innovation, integrated innovation, and the ability to introduce, digest, absorb, and re-innovate. Among various approaches and methods of financial support for innovation, the capital market has a natural advantage. The risk-sharing and benefit-sharing mechanism provided by the capital market can drive the aggregation of various resources towards high-tech industries, accelerate the transformation of scientific and technological achievements into productive forces, improve national innovation capabilities, and accelerate the construction and improvement of the national innovation system and knowledge innovation system.
　　Opportunity Four: The huge wealth management needs of the general public provide the capital market with a continuous source of long-term funds.
　　The 18th National Congress of the Communist Party of China proposed that, on the basis of significantly enhancing the balance, coordination, and sustainability of development, the gross domestic product (GDP) and per capita income of urban and rural residents should double by 2020 compared to 2010. Looking at the doubling of per capita income of urban and rural residents compared to 2010, the per capita disposable income of urban residents in 2010 was approximately RMB 20,000, and it is expected to reach approximately RMB 40,000-45,000 by 2020; the per capita net income of rural farmers in 2010 was approximately RMB 6,000, and it is expected to reach approximately RMB 12,000-15,000 by 2020. With the significant increase in per capita income, the people need a comprehensive and efficient wealth management platform, and the capital market can fully provide the necessary wealth management functions.
　　Simultaneously with the significant increase in people's income levels, China's aging population is increasing. By 2020, people aged 65 and above will account for 12% of the total population. However, China's social security and pension system construction has not kept pace. Due to narrow investment channels and backward institutional construction, China's social security funds, enterprise annuities, and other long-term funds are facing enormous pressure to maintain and increase their value. By the end of 2011, the national social insurance fund had accumulated reserves of RMB 3 trillion, 98% of which were deposited in financial institutions, resulting in high opportunity costs and significant hidden losses. Therefore, it is necessary to utilize the capital market to centrally operate and professionally manage these funds, achieving value preservation and appreciation through market-oriented methods.
　　Opportunity Five: The comprehensive construction of a moderately prosperous society and the upgrading of the social economy provide opportunities for rapid growth in the operating performance of a large number of listed companies.
　　With the continuous advancement of the construction of a resource-conserving and environmentally friendly society, the significant improvement in the level and quality of industrialization, informatization, urbanization, and agricultural modernization, the comprehensive construction of a moderately prosperous society and the resulting consumption upgrade due to the doubling of residents' income, and China's successful entry into the ranks of innovative countries, along with the development and growth of strategic emerging industries, advanced manufacturing industries, and modern service industries, China's capital market will give rise to a large number of leading companies with explosive growth in operating space and excellent financial performance. These companies will provide investors with continuous and substantial investment returns, allowing the general public to fully share the fruits of rapid economic growth.
　　Opportunity Six: Diversified investment portfolios in the capital market contribute to a significant increase in residents' investment income.
　　With the continuous advancement of market-oriented reforms, the innovative businesses of securities companies and fund companies are constantly developing, and the number of innovative products is constantly increasing. The investment targets and portfolios available for investment are becoming increasingly rich, ranging from the money market, bond market, and stock market to various tiered and mixed product combinations, forming a product chain with a diverse risk-return structure to meet the needs of investors with different risk preferences. This allows investors to obtain increasing investment returns and property income from the capital market, fundamentally changing the previous situation where residents' property income was excessively dependent on low-level deposit interest.
　　III. Future Development Outlook for China's Capital Market
　　The "Twelfth Five-Year Plan" for the Development and Reform of the Financial Industry and the report of the 18th National Congress of the Communist Party of China have made comprehensive deployments for the reform and development of China's capital market in the current period and for some time to come. Specific tasks have been clearly put forward, including "significantly increasing the proportion of direct financing," "deepening the reform of the stock issuance system," "actively developing the bond market," "promoting the development of futures and financial derivatives markets," "strengthening the construction of basic market institutions," and "deepening financial system reform, improving a modern financial system that promotes macroeconomic stability and supports the real economy, and developing a multi-tiered capital market." In the coming period, China's capital market will make significant breakthroughs in terms of scale, structure, competitiveness, standardization, and openness.
　　In terms of market scale, the proportion of direct financing will be significantly increased. The social financing structure will be comprehensively optimized, and the proportion of direct financing in the total social financing is expected to increase to 30%-40%. A financial system primarily based on direct financing will be initially formed, and the financial structure will be basically balanced. The resilience and stability of the financial system will be significantly enhanced, and the ability to prevent and resolve systemic and regional financial risks will be significantly improved.
　　In terms of market structure, stocks, bonds, futures, financial derivatives, and other capital market instruments will be comprehensively developed, resulting in a more reasonable and balanced market structure. Financial products will be more abundant, market depth and breadth will be greatly expanded, trading mechanisms will be more perfect and efficient, and a multi-tiered, highly efficient, and comprehensive market system will be gradually formed to meet diversified investment and financing needs.
　　In terms of market competitiveness, the international competitiveness and influence of market entities will be significantly enhanced. A number of securities companies, modern wealth management institutions, and intermediary service institutions with international competitiveness will emerge, the level of financial services will be comprehensively improved, and institutional investors will become the decisive investment entities. The governance and operation of listed companies will be sound and standardized, and their overall quality will be significantly improved.
　　In terms of market standardization, market laws and regulations will be further improved. The "three public" principles will be effectively upheld, a transparent and efficient regulatory system will be basically established, market operation will be more stable, investors' legitimate rights and interests will be fully protected, and various market innovation activities will have more development and flexibility.
　　In terms of market openness, the market will be more open and inclusive. The degree of participation of international financial institutions and international capital in China's capital market will be further increased, financial service infrastructure will reach internationally advanced levels, effectively promoting the basic convertibility of the RMB capital account, and further enhancing China's ability to allocate resources globally.
　　As an important platform for resource allocation and wealth management, China's capital market shoulders a more important historical mission. In the coming period, we need to continuously accelerate market-oriented reforms and gradually build a mature capital market that is in line with China's economic development level—a world-class capital market with a reasonable system structure, perfect operating mechanisms, fully functioning capabilities, and substantial investment returns—to make greater contributions to supporting and promoting the development of the real economy.