The final goal for China's economic reform is to establish a
sound and complete market economy system. With the continuing
advancement of the market-oriented reform of the economic system,
the market-determined of capital transaction in China will continue
to develop to a higher level. Especially after China's WTO entry in
2001, the speeding up of market-oriented reforms in China's
economic system will bring about a faster development of
market-determined capital transactions.
1. More Improved Capital Market System
At present, the proportion between the funds raised through the
capital market and the bank loans is about 2 to 8, which indicates
that on the one hand, the ratio of direct financing is relatively
low and has great potentiality; on the other hand, the bank shall
take too much risks. With the development of scientific technology
and high-tech enterprises, the proportion of high-risk industries
shall keep growing, which requires to replace the traditional
fund-raising means characterized mainly by indirect financing with
one means characterized by capital market financing. A mechanism in
which the investors and fund-raisers both take the risks shall be
established, and the development of the new economy and science and
technology also calls for an increased proportion of direct
financing. For the purpose of adapting this demand, the second
board in China shall be established when the conditions are ripe
for law-making, regulation, technology and market preparation. The
second board provides a direct financing channel for those medium
and small size enterprises with a high technology contend and a
good growth prospective, and a withdrawing channel for the venture
capitals. Meanwhile, it plays an important role in promoting the
economy development, optimizing the industrial structure and
increasing the whole competitiveness of the national economy by way
of supporting the growth of high-tech enterprises. The bond market
shall expect a significant development. The proportion of raising
funds through bonds by enterprises shall keep increasing too, and a
diversified securities market system in which the stock market and
the bond market are co-existing shall be formed to expand the room
for the further development of the securities market and also to
reduce the too much risks borne by the banks. At the same time, the
laws and regulations governing the capital market shall be further
strengthened, and a comparatively perfected legal system concerning
securities regulations focusing on the Securities Law of the
People's Republic of China shall be formed, and provide a
solid legal foundation for the standardized development and
administration by law of the securities market. The securities
market, with the supervision and administration being further
strengthened, shall meet with its standardized development.
2. Further Market-Oriented Flow and Allocation of the
State-owned Capital
According to the demands of the goal put forward in the Report
of 16th National Congress of the CPC, there shall be a breakthrough
progress in the reform of state property management mechanism. The
establishment of State Assets Supervision and?Administration
Commission shall greatly promote the reforming process of
state-owned enterprises, break the pattern in which state property
was separated into five parts and governed respectively under the
five national departments. State property shall not be solidified
in a certain industry or region, and shall be given freedom to flow
among different industries, relatively increasing the allocation
and utilization efficiency. With the advancement of market-oriented
reform of state-owned enterprises and the strategic reorganization
of the state-owned sector, the corporate shares and state-owned
shares of the state-owned listed companies shall enter the market
for circulation, which shall not only further strengthen the
state's ability in resolving problems leftover for historical
reasons and expand the scope covered by the social security
mechanism, but also promote the structural regulation of the
state-owned sector and urge the state-owned sector to concentrate
on the basic industry and public welfare industry, upgrading the
leading role of the state-owned sector in developing the national
economy, meanwhile further improving the diversified stock
ownership of state-owned enterprises and establishing an improved
administration structure by legal person, with an aim to make
state-owned enterprises more adaptable to the demands of the market
economy and realizing the valid flow and maintenance and
appreciation of state property. The work has been pushing forward
to break the monopoly in post and telecommunications, traffic and
communication, power, petrochemical, transportation sectors and to
invite the market competitive mechanism, and the private capital
shall play a more important role in those fields.
3.The Proportion of Funds from the Market
Increasing
Since 1998, China has actively expanded its domestic demand by
way of adopting the positive fiscal and monetary policies in order
to overcome the effects brought about by the Asian Financial
Crisis, making the proportion of the governmental investment in the
total investment in fixed assets relatively increase. At present,
with the resumed economic growth in China, the expanded fiscal
policy adopted to fight against the Asian Financial Crisis and the
world wide economic depression may be possible to gradually fade
out after being carried out for almost 5 years. In 2003, the
planned issuing scale of the construction bonds in China is 140,
000 million yuan, a drop by 10,000 million yuan as compared to
2002. This is an important signal indicating the shifting of the
fiscal policy from an expanded one to a medium one. With the
gradual fading out of the expanded fiscal policy, the ratio of the
budgetary investment funds in the total investment in fixed assets
shall decline. With the reduced number of state-owned enterprises,
the ratio of the state-owned sector in the total investment in
fixed assets shall decline too. While, the ratio of those
market-oriented investment funds coming from the loans of
commercial banks, securities financing and utilization of foreign
investment shall resume its increase. So, in general, marketization
of capital in China will develop to a considerably higher
level.
4. Foreign Investment to Further Increase in
Volume
Foreign investment plays an important role in marketization of
capital in China. Because the means of employing foreign investment
is relatively limited and characterized mainly by direct
investment, the state strictly controls the foreign investment in
consideration of the state's ability to pay debts and the
maintenance of the macro economy. While the stock financing is
affected by the inconvertibility of renminbi under capital accounts
and divided into A Share and B Share, this prevents foreign
investment from better participating in the regulation of China's
economic structure and the reorganization of the state-owned
sector. After joining the WTO, China's economy shall day by day
incorporate in the world economy. The reform in economic system
shall be further deepened, the convertibility of reminbi under
capital accounts shall make significant progress, and the channel
and room in which foreign investment participate in China's
economic development shall be further expanded. According to the
promises made in the field of securities by China when entering
WTO, the foreign securities institutions may directly participate
in B Share transaction. So, China's capital market and
international capital market shall gradually become incorporated,
and the flow of international capital shall bring about more
important effects on China's economic development, and require the
macro economy regulation in China to he carried out at a higher
standard.
5.Financing Mechanism Combining Direct and Indirect
Approaches with Effective Regulation by Market to be
Formed
In honoring our commitments to the WTO, the functions of the
Chinese Government shall be further shifted from the governmental
administrative system to the public administrative system, and the
investment management system shall gradually turn into a
market-oriented investment management system indirectly guided by
the government through the macro regulation policy. Meanwhile, the
reform in financial system shall be the focus in current economy
system reform. At present, the transformation of the state-owned
commercial banks and insurance companies toward the stock-holding
mechanism have been initiated, and shall further increase the ratio
of non-state-owned sector financing and create good conditions for
the development of non-state-owned sector. The competition among
the banks shall be intensified, and the risk restraint mechanism of
commercial banks be further strengthened. The marketizatation of
the financial supervision and administration mechanism is actively
propelled, and the reform in marketization of interest rate is
steadily under-way. The financing costs and capital utilization
prices in China will more effectively reflect the supply and demand
situations in the market. China's financial market, the capital
market in particular, are becoming more standardized. The in-depth
development of marketization in the investment and financing
mechanism shall substantially contribute to the marketization of
investing funds such as bank loans.
(China.org.cn November 7, 2003)
