Wu Xiaoqiu: I understand the capital market, and not talking about it at this time is contrary to the conscience of scholars

Source: Economic Transformation Research

Author: Wu Xiaoqiu

Restoring market confidence is the most important thing at present.

"I still have confidence in China's capital market, and I don't believe that it will continue like this, because China is going to develop, because our capital market system will still be gradually improved, because more and more people have seen the problems in this market. At the 2024 (13th) China Capital Annual Conference of Rongzhong Finance, Wu Xiaoqiu, a famous financier and dean of the National Institute of Financial Research of Renmin University of Chinese, said this.

Talking about the current market situation, Wu Xiaoqiu recalled the crisis in the U.S. capital market in 2021, "At this critical moment, the Federal Reserve broke the routine and intervened quickly, which even subverted the definition of textbooks." So the U.S. market has regained confidence, stabilized the market, and continues to hit new highs. ”

In the face of the current situation in the domestic capital market, Wu Xiaoqiu believes that relevant departments should pay attention to the stability of the market. He stressed that China's capital market carries the important mission of China to become a financial power, and is the core and cornerstone of the modern financial system. In addition to the financing function, the capital market also has the functions of investment, wealth management, and diversified asset allocation for the society, and is a reserve and growth mechanism for the stock of wealth.

At the meeting, Wu Xiaoqiu called for the IPO to be suspended now. He believes that the registration system is an important direction for the reform of China's capital market system, and it is necessary to do a good job, do a deep job, and do a solid job. He pointed out that the success of the registration system requires at least three prerequisites: first, the legal obligation of issuers to disclose information; second, strict punishment and strict law; and third, the fairness of intermediaries.

At the same time, Wu Xiaoqiu proposed to continue to carry out comprehensive reforms in the IPO registration system, securities lending mechanism and shareholding reduction rules, with the restoration of market confidence as the first task, system reform is a long-term task, and stabilizing market confidence is the current focus of work.

At the meeting on the 18th, Wu Xiaoqiu delivered a speech with the theme of "Restoring market confidence is the top priority of China's capital market". The following is the highlight of Wu Xiaoqiu's on-site speech, edited and compiled by Rongzhong Finance (ID: thecapital).

In 2023, China's GDP has grown by 5.2%, which is a very shining number that indicates that China's economy is recovering. However, I was also confused that our market did not respond accordingly. It stands to reason that these signals should be responded positively by the market, but I feel that the market reaction is not so positive, and it is still necessary to think about the problem and the reasons.

"We need to fully recognize the strategic value of developing in China's capital market"

China's capital market is an important carrier for realizing the financial power proposed by the central government. The connotation of financial power is very rich, but from the perspective of theoretical logic, the main carrier carrying China's dream of realizing the dream of financial power is the capital market. If the capital market does not develop, and if the capital market is difficult to become an important global wealth management in the future, the realization of the goal of becoming a financial power will be greatly reduced.

The capital market plays a pivotal role in the construction of a modern financial system. The role of the so-called hub is that the capital market is the core and cornerstone of the modern financial system. The capital market not only has the function of financing, but also has more important functions, such as the function of wealth management and investment, and provides the function of diversified asset allocation for the society. It is the reserve and growth mechanism of stock wealth, and it is also a mechanism to reasonably guide the flow of capital through information flow, and at the same time, it has an important role in incubating high-tech enterprises, promoting the transformation of the national economic structure and industrial upgrading and iteration, and is also an important foundation for the internationalization of RMB.

I would like to tell you that the capital market is not just a market that provides convenience for enterprises to raise funds as some people understand. Whether it is the financing of state-owned enterprises or the financing of high-tech enterprises, investors in the capital market need returns, which are higher than fixed income, and even higher than risk-free returns, because the market it invests in is a risk market, and the risk market is to have a rate of return that exceeds fixed income and risk-free returns.

01 A deep understanding of common sense is the only way to have a deep understanding of the market

The funds of market investors are not philanthropists, or even inclusive funds, and they are not given to anyone who is short of money, but they need to obtain returns that match the risk of this market.

In the long run, if the capital market fails to meet the expectations of this return, it will be reduced to a speculative market. Therefore, the transformation of concepts and functions is very important.

Our understanding of finance and our understanding of risk are inaccurate, if not very backward.

For example, if you think that the rise of stocks is a risk, and the fall of stocks is a release of risk, if this is the case, the market will ignore this situation. From a financial point of view, the rise in stocks reflects the strong confidence of the society, reflects the positive expectations of the society, and is a very positive signal, which is more real than any other indicator and can truly reflect the current situation of a country.

I think it's common sense, there's nothing subjective about it. It takes common sense to see the problem. If we have a clear understanding of the function of the capital market, we will attach great importance to the development of the capital market and will never regard it as a market with only financing functions. All growing markets have confidence and expectations, and at the same time, a series of systems, policies, and rules that are compatible with the development of the capital market will be formed, and we cannot deviate from the inherent requirements and basic laws of the capital market.

It should be noted that the current development of the capital market is out of order, and this is not entirely the responsibility of the regulatory authorities, and it is necessary to maintain the stability of the capital market from a more macro perspective.

In general, it is difficult for regulators to do things that are beyond their purview, but when necessary, regulators need to take bold steps to stabilize the market. For example, in the United States, the SEC's role is primarily to regulate, and the Federal Reserve will intervene when there is a huge turmoil or decline in the U.S. capital market. In 2021, there were four circuit breakers in the United States, followed by a financial crisis, and at this critical moment, the Federal Reserve broke the routine and quickly intervened, a move that subverted the textbook definition and restored the confidence of the American market and stabilized the market. At the most critical moment, important financial sectors must be resolute and resolute in maintaining market stability.

It can be said that now the market has really reached a more critical time, and all parties need to work hard. Of course, investors should have confidence and not panic, and our management departments, especially the comprehensive financial management departments such as the central bank, need to pay attention to the stability of the market, and the high-level departments should coordinate with various departments to stabilize the situation.

At present, China's social order is stable, and the economy is also in the stage of recovery, but the market has undergone such changes, and from the deep-seated reasons, it is the lack of understanding and inaccuracy of the market, and specifically, a series of systems, policies, and rules have loopholes and defects.

In the face of this situation, although I do not dare to use the word crisis now, it is true that there is a situation, and it is important to have resolute, effective, and stable measures. We need to look at the problem directly, and the most important thing at the moment is to restore investor confidence, which is at the top of the list. It is important to adjust some long-term systems now, but the effect will not be immediate. Just like a bleeding patient, for the time being, he can't consider the cause of his illness, he must stop the bleeding first, and the bleeding will not stop, just looking at the cause will be very risky. Therefore, I hope that the relevant departments will hear some suggestions, which are all well-intentioned and constructive, and do not have the slightest criticism or criticism of specific work. If I were a layman, I would definitely not say it, but I still understand this market, and it would be contrary to the conscience of scholars not to talk about it at this time.

02Restore confidence and stabilize the market

Restoring confidence and stabilizing the market, which is what I mean by stopping the bleeding, is the most important task and the top priority at present. I think there are two main points. Shoot when it's time to shoot, don't hesitate.

In the face of the current state of the capital market, I would still like to call for the suspension of IPOs. And for good reason. The registration system is an important direction for the reform of China's capital market system, and we must do a good job, do it deeply, and do it practically, but judging from the current practice, there are defects and deficiencies, and these deficiencies are an important reason for the formation of today's market conditions.

The success of the registration system requires at least three prerequisites: 1. the legal obligation of the issuer to disclose information, 2. the strict punishment of the law, and 3. the fairness of the intermediary.

The legal obligation of issuers to disclose information and the strict laws are complementary to each other, and there must be strict penalties for false disclosure of information, so that issuers do not dare to commit it again, so as to regulate the timely and complete disclosure of issuers' statutory information. In 2001, the SEC imposed a very severe punishment on Enron, and Enron eventually collapsed. Its auditing firm, Arthur Andersen, was dissolved. Why did the SEC give Enron such a heavy punishment, because in the process of registration-based IPO, legal and accurate information disclosure is extremely important, and false information disclosure must be dealt a devastating blow.

Why is there such a serious queue in China in the process of listing? There is a huge problem hidden in the queue, and they are eager to try and want to break through, and there is no cost to break through. Once false disclosure is discovered, it is necessary to severely punish all the interlopers and fraudulent listings, and it is necessary to give these counterfeiters and deceiters the majesty of the law in order to maintain the adequacy and timeliness of the disclosed information.

Intermediaries should be impartial. For the sake of a mere 40,000 service fee and underwriting fee, the professional ethics requirements of intermediaries and legal provisions cannot be disregarded.

Only when these foundations are laid well can the registration system be successful. At present, our registration system has not done a perfect job in these necessary conditions, so the suspension of IPO has its important practical significance.

There are some voices in the market who do not understand the deep meaning behind the IPO slowdown. Some people say that the company has already submitted materials and is waiting for the IPO money, otherwise, the company will not survive. I will tell them that the money for the IPO is not the life-saving money of the corporate "ICU", it is the money for development, not the life-saving money.

Secondly, we need to improve the system, mainly from three aspects:

First, the improvement of the IPO system on the basis of the registration system. Laws and systems should be strictly deterred, and the system and legal environment of the IPO process should be further regulated;

Second, it is the rule of reducing holdings. In addition to the "CSRC Co-ordinates the Balance of the Primary and Secondary Markets to Optimize the Regulatory Arrangements for IPO and Refinancing" issued by the China Securities Regulatory Commission on August 27, "The CSRC Further Regulates the Reduction of Share Holdings" and "The Stock Exchange Reduces the Financing Margin Ratio to Support Moderate Financing Needs", we must also add the ratio requirements for corporate financing and profit creation. In order to completely eliminate the phenomenon of IPO queuing, we must start by improving the shareholding reduction system;

Third, the securities lending mechanism needs to be completely reformed, and all parties have realized this aspect, and we must implement it in action. The short-term relief policy to restore confidence and the long-term institutional reform should be coordinated. At present, the measures to stop the bleeding are mainly to suspend the IPO, coordinate large funds such as the central bank to intervene in the market, the sooner the better, and be resolute and decisive.

Overall, I still have confidence in the Chinese market, I don't believe that it will continue like this, because China is going to develop, because our system will be improved, because more and more people see the problems in this market and the urgency of solving them.