Several Opinions of the State Council on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market

Source: Chinese government website

Guo Fa [2024] No. 10

The people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, and all ministries and commissions of the State Council, and all agencies directly under the State Council:

Since the 18th National Congress of the Communist Party of China, the rapid development of the mainland's capital market has played an important role in promoting the optimal allocation of resources, promoting rapid economic development and long-term social stability, and supporting scientific and technological innovation. In order to thoroughly implement the spirit of the Central Financial Work Conference and further promote the high-quality development of the capital market, the following opinions are hereby put forward.

1. General requirements

Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, we will fully implement the spirit of the 20th National Congress of the Communist Party of China and the Second Plenary Session of the 20th Central Committee of the Communist Party of China, implement the new development concept, closely focus on building a safe, standardized, transparent, open, dynamic and resilient capital market, adhere to the combination of the general laws of the capital market with China's national and market conditions, adhere to the political and people's nature of the capital market work, and strengthen supervision, risk prevention, Promoting high-quality development as the main line, focusing on improving the basic system of the capital market, giving better play to the functional role of the capital market, promoting the construction of a financial power, and serving the overall situation of Chinese-style modernization.

Deeply grasp the main connotation of the high-quality development of the capital market, and achieve the stable and healthy development of the capital market in serving major national strategies and promoting high-quality economic and social development. We must uphold and strengthen the party's leadership, give full play to the party's political, organizational, and institutional advantages, and ensure that the capital market always maintains the correct direction of development; we must always practice the concept of finance for the people, highlight the people-centered value orientation, more effectively protect the legitimate rights and interests of investors, especially small and medium-sized investors, and help better meet the growing wealth management needs of the people; we must comprehensively strengthen supervision, effectively prevent and resolve risks, and take stability as the keynote, and be strict in order to ensure that supervision is "long teeth and thorns". We must always adhere to the principle of marketization and rule of law, highlight goal-oriented and problem-oriented, further deepen the reform of the capital market in an all-round way, and coordinate openness and security; we must firmly grasp the theme of high-quality development, uphold integrity and innovation, and more effectively serve the key areas of the national economy and the construction of a modern industrial system.

In the next five years, an overall framework for the high-quality development of the capital market will be basically formed. The institutional mechanism for investor protection has been further improved. The quality and structure of listed companies have been significantly optimized, and the strength and service capabilities of securities, funds and futures institutions have continued to increase. The regulatory capacity and effectiveness of the capital market have been greatly improved. The formation of a sound ecology of the capital market has been accelerated. By 2035, a capital market with a high degree of adaptability, competitiveness and inclusiveness will be basically established, and the legitimate rights and interests of investors will be more effectively protected. The investment and financing structure has tended to be rational, the quality of listed companies has been markedly improved, and significant progress has been made in the construction of first-class investment banks and investment institutions. The regulatory system and mechanism of the capital market have become more complete. By the middle of this century, the modernization level of the capital market governance system and governance capacity will be further improved, and a high-quality capital market will be built that matches that of a financial power.

2. Strictly control the issuance and listing access

Further improve the issuance and listing system. Raise the listing standards of the main board and the Growth Enterprise Market, and improve the evaluation standards for the scientific and technological innovation attributes of the Science and Technology Innovation Board. Improve the quality and efficiency of issuance and listing counseling, and expand the coverage of on-site inspections of enterprises under review and related intermediaries. It is clear that the dividend policy should be disclosed when listing. Situations such as pre-listing surprise "clearance" dividends will be included in the negative list for issuance and listing. Strictly supervise spin-offs and listings. Strict refinancing review and control.

Strengthen the responsibility of the whole chain of issuance and listing. Further consolidate the main responsibility of the exchange for review, improve the establishment and operation mechanism of the stock listing committee, and strengthen the supervision of the whole process of committee members' performance of duties. Establish a mechanism for retrospective accountability and accountability for audits. Further consolidate the primary responsibility of issuers and the "gatekeeper" responsibilities of intermediaries, and establish a "blacklist" system for intermediaries. Adhere to the principle of "declaration is responsibility", and strictly investigate illegal issues such as fraudulent issuance.

Intensify the supervision of issuance and underwriting. Strengthen the supervision of all aspects of new share issuance, inquiry, pricing, and placement, and rectify market chaos such as over-offering at high prices and price reduction. Strictly strengthen the supervision of information disclosure of fundraising and investment projects. Regulate and guide the healthy development of capital in accordance with the law, strengthen penetrating supervision and regulatory coordination, and severely crack down on illegal holdings, surprise shareholding at abnormal prices, and benefit transfer.

3. Strict continuous supervision of listed companies

Strengthen information disclosure and corporate governance supervision. Establish a comprehensive punishment and prevention system for preventing and combating counterfeiting in the capital market, and seriously rectify violations of laws and regulations in key areas such as financial fraud and capital occupation. Supervise and urge listed companies to improve their internal control systems. Give full play to the supervisory role of independent directors, and strengthen the performance of duties to safeguard and restrain them.

Comprehensively improve the system of rules for reducing holdings. Issued measures for the management of shareholding reduction of listed companies, and implemented policies for different types of shareholders. Strictly regulate the reduction of shareholdings by major shareholders, especially controlling shareholders and actual controllers, and resolutely prevent all kinds of detours from reducing shareholdings in accordance with the principle of substance over form. Order the violating entity to repurchase the shares that have been reduced in violation of the regulations and pay the price difference. Crack down on all kinds of illegal reductions.

Strengthen the supervision of cash dividends of listed companies. For companies that have not paid dividends for many years or have a low proportion of dividends, major shareholders are restricted from reducing their holdings and risk warnings are implemented. Increase incentives for high-quality companies that pay dividends, and take multiple measures to promote the increase in dividend yields. Enhance the stability, sustainability and predictability of dividends, and promote multiple dividends a year, pre-dividends, and dividends before the Spring Festival.

Promote listed companies to enhance their investment value. Formulate guidelines for the management of market value of listed companies. Research on the inclusion of market value management of listed companies in the internal and external assessment and evaluation system of enterprises. Guide listed companies to repurchase shares and cancel them in accordance with the law. Encourage listed companies to focus on their main business, and comprehensively use mergers and acquisitions, equity incentives, etc. to improve the quality of development. Strictly crack down on market manipulation, insider trading, and other violations of laws and regulations in the name of market value management in accordance with the law.

Fourth, increase the supervision of delisting

Deepen the reform of the delisting system, and accelerate the formation of a normalized delisting pattern that should be withdrawn and cleared in a timely manner. Further tighten the criteria for mandatory delisting. Establish and improve the differentiated delisting standard system for different sectors. Scientifically set up the scope of application for major illegal delisting. Tighten financial delisting indicators. Improve market capitalization standards and other trading delisting indicators. Intensify the implementation of standardized delisting. Further unblock diversified delisting channels. Improve policies and regulations such as absorption and merger, and encourage and guide leading companies to increase the integration of listed companies in the industrial chain based on their main business. Further reduction in the value of "shell" resources. Strengthen the supervision of mergers and acquisitions, strengthen the relevance of the main business, strictly control the quality of injected assets, increase the supervision of "backdoor listing", and accurately crack down on all kinds of illegal "shell" behaviors. Further strengthen the supervision of delisting. Strictly enforce delisting, and severely crack down on financial fraud, market manipulation and other illegal acts that maliciously circumvent delisting. Improve the investor compensation and relief mechanism in the process of delisting, and the controlling shareholders, actual controllers, directors and senior executives who are responsible for major illegal delisting shall compensate investors for losses in accordance with the law.

5. Strengthen the supervision of securities and fund institutions, and promote the industry to return to its origins and become better and stronger

Promote the high-quality development of securities and fund institutions. Guide industry institutions to establish a correct business philosophy and handle the relationship between functionality and profitability. Strengthen the management of shareholders and business access of industry institutions, and improve the conditions for senior executives and the filing management system. Improve the regulatory system for key businesses such as derivatives and margin trading. Promote industry institutions to strengthen investment banking capabilities and wealth management capacity-building. Support leading institutions to enhance their core competitiveness through mergers and acquisitions, organizational innovation, etc., and encourage small and medium-sized institutions to develop differently and operate with characteristics.

Actively cultivate a good industry culture and investment culture. Improve the remuneration management system of the securities and fund industry that is compatible with business performance, business nature, contribution level, compliance and risk control, and social culture. Continue to carry out comprehensive management of industry culture, establish and improve the system of classified lists of practitioners and the management mechanism of professional reputation, and resolutely rectify unhealthy trends such as money worship, extravagant pleasure, eagerness for quick success, and "flaunting wealth".

6. Strengthen transaction supervision and enhance the internal stability of the capital market

Promote the smooth operation of the market. Strengthen the comprehensive research and judgment of stock market risks. Strengthen the strategic force reserve and the building of stability mechanisms. Concentrate on rectifying outstanding risks and hidden dangers in the field of private equity funds. Improve the market-oriented, law-based, and diversified bond default risk handling mechanism, and resolutely crack down on debt evasion. Explore futures regulatory regimes and business models that adapt to China's development stage. Do a good job in cross-market, cross-industry and cross-border risk monitoring and response.

Strengthen the supervision of transactions. Improve regulatory standards for abnormal transactions and market manipulation. Introduce regulations on programmatic trading supervision and strengthen the supervision of high-frequency quantitative trading. Formulate rules for the operation of private securities funds. Strengthen bottom-line thinking and improve response to extreme situations. Strictly investigate and deal with illegal acts such as manipulating the market and malicious short-selling, and strengthen deterrence warnings.

Improve the expectation management mechanism. Incorporate the assessment of the impact of major economic or non-economic policies on the capital market into the framework for assessing the consistency of macroeconomic policy orientations, and establish a coordination mechanism for the release of major policy information.

7. Vigorously promote the entry of medium and long-term funds into the market, and continue to expand the long-term investment force

Establish a market ecology that cultivates long-term investment, improve the basic system for long-term investment, and build a policy system that supports "long-term money and long-term investment". Vigorously develop equity public funds, and greatly increase the proportion of equity funds. Establish a fast-track approval channel for exchange-traded funds (ETFs) to promote the development of indexed investment. Comprehensively strengthen the investment and research capacity building of fund companies, enrich the types of investable assets and investment portfolios of public funds, and transform from scale-oriented to return-oriented for investors. Steadily reduce the comprehensive rate of the public fund industry, and study and standardize the remuneration system of fund managers. Revise the classification and evaluation system for fund managers, and urge the establishment of rational investment, value investment, and long-term investment concepts. Support the steady development of private securities investment funds and private asset management business, and enhance the stability of investment behavior.

Optimize the policy environment for equity investment of insurance funds, implement and improve the performance evaluation methods of state-owned insurance companies, and better encourage long-term equity investment. Improve the regulatory system for equity investment of insurance funds, and optimize the information disclosure requirements of listed insurance companies. Improve the investment policies of the national social security fund and the basic pension insurance fund. Enhance the flexibility of enterprise annuity and personal pension investment. Encourage bank wealth management and trust funds to actively participate in the capital market and increase the scale of equity investment.

8. Further deepen reform and opening up in an all-round way to better serve high-quality development

Strive to do a good job in science and technology finance, green finance, inclusive finance, pension finance, and digital finance. Promote the deepening and implementation of the stock issuance registration system, enhance the competitiveness of the capital market system, enhance the inclusiveness of new industries, new forms of business and new technologies, and better serve the implementation of national strategies such as scientific and technological innovation, green development, and the reform of state-owned assets and state-owned enterprises, as well as the development and growth of small and medium-sized enterprises and private enterprises, and promote the development of new quality productive forces. Increase equity and debt financing support for enterprises that are in line with the national industrial policy orientation and make breakthroughs in key core technologies. Intensify the reform of mergers and acquisitions, and take multiple measures to activate the mergers and acquisitions market. Improve the sustainability information disclosure system of listed companies.

Improve the multi-level capital market system. Adhere to the dislocation development of the main board, the science and technology innovation board, the growth enterprise board and the Beijing Stock Exchange, deepen the reform of the new third board, and promote the standardized development of regional equity markets. We will further smooth the cycle of "fundraising, investment, management and withdrawal", and give full play to the role of venture capital and private equity investment in supporting scientific and technological innovation. Promote the high-quality development of the bond and real estate investment trusts (REITs) market. Develop the futures and derivatives markets in a prudent and orderly manner.

Adhere to the overall planning of the capital market, high-level institutional openness and security. Expand and optimize the cross-border interconnection mechanism of the capital market. Broaden the financing channels for overseas listings of enterprises, and improve the quality and efficiency of overseas listing filing management. Strengthen regulatory capacity building under open conditions. Deepen international cooperation in securities regulation.

9. Promote the formation of a joint force to promote the high-quality development of the capital market

Promote the strengthening of the rule of law in the capital market, and greatly increase the cost of violations of laws and regulations. Promote the revision of the Securities Investment Fund Law. It has promulgated regulations on the supervision and administration of listed companies, revised the regulations on the supervision and administration of securities companies, accelerated the formulation of regulations on the administration of corporate bonds, and studied and formulated regulations on the management of real estate investment trusts. Promote the issuance of judicial interpretations on the crime of breach of trust harming the interests of listed companies, judicial interpretations on civil compensation such as insider trading and market manipulation, and judicial documents on cracking down on criminal acts such as misappropriation of private equity funds and the use of entrusted assets in breach of trust.

Intensify joint crackdowns on securities and futures crimes. Complete mechanisms such as for the discovery of clues and rewards for reporting. Improve the judicial system and mechanism for securities law enforcement, and improve the efficiency of the connection between administrative and criminal cases. Strengthen efficient coordination between administrative supervision, administrative adjudication, and administrative procuratorates. Increase the force of three-dimensional accountability in administrative, civil, and criminal cases, and strictly investigate and deal with all kinds of violations of laws and regulations in accordance with the law. Intensify the application of the litigation system of special representatives for securities disputes, and improve the system of commitment of parties to administrative law enforcement. Explore and carry out pilot projects for procuratorial organs to initiate securities civil public interest litigation. Further strengthen the establishment of a credit system in the capital market.

Deepen the coordination and linkage between the central and local governments and ministries. Strengthen macro policy coordination, promote the high-quality development of the real economy and industries, and create a good environment for the healthy development of the capital market. Implement and improve tax policies for listed companies, such as equity incentives, medium and long-term funds, private equity venture capital funds, and real estate investment trusts, and improve the fiscal and taxation system conducive to the formation of innovative capital and the active market. Establish a central-local and cross-departmental regulatory data and information sharing mechanism. Consolidate the responsibilities of local governments in improving the quality of listed companies and resolving the risks of bond defaults and private equity firms.

Build a strong political and competent regulatory iron army. We should put political construction in a more prominent position, further promote the comprehensive and strict governance of the party, and forge a team of high-quality and professional capital market cadres who are loyal, clean and responsible. We must resolutely dispel erroneous ideas such as "exceptionalism", "elitism" and "particularism". Strictly improve the management of resignations, and rectify problems such as "shadow shareholders", improper shareholding, "revolving door" of politics and business, and "escape resignation". Eradicate the soil and conditions for corruption, resolutely punish corruption problems such as the interweaving of corruption and risks, and the collusion between capital and power, and create a clean and upright political ecology.

State council

April 4, 2024

(This article has been abridged)