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After a lapse of 10 years, the State Council once again issued a core "directive" for the capital market.
On April 12, 2024, the State Council issued the "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market", which is known as the new "National Nine Articles" by the market, which is another version of the "National Nine Articles" issued by the State Council after the two "National Nine Articles" in 2004 and 2014.
The reason why it is called the "National Nine Articles" is that the opinions are divided into nine parts, involving core issues such as listing access, supervision of listed companies, supervision of delisting, and supervision of transactions, and are relatively comprehensive guiding documents for the construction of the capital market.
New "Kokukujo" Summary
The new "National Nine Articles" issued by the State Council this time are the guiding documents for the capital market issued by the State Council after 10 years, following the two "National Nine Articles" in 2004 and 2014. The key points are as follows:
Milestones
In the next five years, an overall framework for the high-quality development of the capital market will be basically formed.
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.
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.
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.
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.
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. 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.
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.
Promote listed companies to enhance their investment value. Formulate guidelines for the management of market value of listed companies. 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.
Intensify 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.
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.
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.
Actively cultivate a good industry culture and investment 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".
Strengthen the supervision of transactions 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. 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. 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.
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".
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.
We will further deepen reform and opening up in an all-round way and 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.
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.
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.
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 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.
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.
Where is the new "National Nine Articles"?
Each time the "National Nine Articles" have different historical tasks.
In 2004, the State Council promulgated the first "National Nine Articles" in the history of China's capital market. One background is that the stock price was in a long-term depression at that time, and it was difficult to solve the problem of "tradable shares" accumulated in the market for a long time.
The A-share capital market was born out of the planned economy, and was initially established to serve the financing of state-owned enterprises, and in 2001, China's accession to the WTO, the economic development entered a new stage, and the legacy of equity division began to be exposed.
"At that time, the main purpose was to solve the division of shares, and with the measures issued by the State Council, we could better coordinate with relevant departments. A person close to the regulator said.
In June 2001, the "Interim Measures for the Management of Reducing State-owned Shares to Raise Social Security Funds" was promulgated, and a huge number of non-tradable shares that had been sealed for many years were to usher in circulation, after which the market reversed and plummeted, and in January 2002, the Shanghai Composite Index once fell below 1,500 points. How to balance the interests of shareholders of tradable shares and non-tradable shares? The first "Nine Articles" were promulgated against this background.
Since then, the governance of domestic listed companies has entered a new stage, the rights and interests of shareholders of tradable shares, especially small and medium-sized shareholders, have been protected to a great extent, and adhering to market-oriented reform has become the core focus of the first "Nine Articles of the State." As it is written: Vigorously developing the capital market is an important strategic task and is of great significance to the mainland's strategic goal of quadrupling the national economy in the first 20 years of this century.
The second "National Nine Articles" were also born to promote reform.
In 2013, the Third Plenary Session of the 18th Central Committee of the Communist Party of China proposed to introduce a "stock issuance registration system centered on information disclosure". In early 2014, the stock market was also in a prolonged downturn. As soon as the second "National Nine Articles" was launched, the market overreacted, and the Shanghai Composite Index rose by more than 5,000 points in less than a year, followed by a sharp fall, and the bull market soon turned bearish.
"The second (Article 9) was introduced to a large extent to cooperate with the registration system, but because the follow-up environment is no longer suitable for the reform of the registration system, it has not played a real role. The above-mentioned person said.
One of the prerequisites for the issuance of the second document is to lay the foundation for the registration system, so more attention has been paid to industry innovation, such as proposing to support the innovative services of securities firms, fund companies and other institutions; proposing to develop multi-level capital markets including the main board, small and medium-sized boards, and gems; and encouraging long-term funds such as pensions and insurance funds to enter the stock market to improve market stability and liquidity.
The two "National Nine Measures" have respectively driven two rounds of A-share bull market, so they are also regarded as the "weather vane" of reform.
The same as the previous two times, A-shares have also faced downward pressure since 2023. One of the biggest differences is that the new "National Nine Articles" are strict at the beginning, "strictly control the issuance and listing review", "strict listing and continuous supervision", "increase the intensity of delisting supervision", etc., and the overall style is different from the previous tone.
At a press conference of various ministries and commissions after the second session of the National People's Congress in March 2024, Wu Qing pointed out that "the next step is to focus on two words, one is strong and the other is strict."
It is worth noting that on the evening of the 12th, the Shanghai Stock Exchange and the Shenzhen Stock Exchange solicited public opinions on business rules such as the "Rules for the Review of Stock Issuance and Listing". It involves moderately raising the financial indicators of listing on the main board, strengthening the dividend constraints of listed companies, and significantly reducing the delisting standards for major violations of financial fraud.
It is worth noting that this is also the fastest launch of the "National Nine Articles". In less than two months from the inauguration of Wu Qing, the new chairman of the China Securities Regulatory Commission, to the release of the document, the coordination and unification of various ministries and commissions has been quite fast, largely because relevant policy documents have been launched before.
On April 10, the China Securities Regulatory Commission announced the construction of a rule of law government in 2023. A total of 717 cases were handled throughout the year, including 186 major cases. During the year, 539 penalty decisions were made, with fines and confiscations amounting to 6.389 billion yuan, and 103 people were banned from entering the market.
Normalized delisting is also accelerating. In 2023, a total of 47 companies will be delisted, of which 44 will be compulsorily delisted. In the three years since the delisting reform, the number of mandatory delistings has exceeded the total number of delistings before the reform.
In mid-March, the China Securities Regulatory Commission (CSRC) issued four policy documents, including the "Opinions on Strictly Controlling the Access to Issuance and Listing and Improving the Quality of Listed Companies from the Source (Trial)", making it clear that the quality of the declaration of enterprises to be listed should be strictly controlled. According to the statistics of Qingke Research Center, a total of 30 A-share companies were listed in the first quarter, down 55.9% year-on-year and 38.8% month-on-month respectively.
Tan Chang, who once served as the chief auditor of listed companies, revealed that after the implementation of the registration system, the relevant IPO financial indicators were relaxed for a time, and the most representative is to allow non-profit enterprises to go public. In the second half of 2022, the exchange began to release relevant policies one after another, such as strict requirements for companies that are "listed on debt", and few such companies can pass the inquiry stage. For example, there is also a tightening trend on the types of listed companies, except for science and technology enterprises, few traditional manufacturing and consumer enterprises can complete the listing.
In the first half of 2023, the tightening of IPOs has become a default phenomenon in the industry, and "many companies that are eager to go public, even if they are short of funds, will not take the risk of rushing to the meeting, because once they fail, it is likely to affect their plans to go public in the future."
What is the impact on the trend of A-shares?
In the view of market participants, strong policy adjustments will not only change the ecology of the capital market, but also have a positive impact on the current trend of A-shares.
Historically, the past two "National Nine Articles" have played a certain role in boosting the stock market.
In 2004, on the first trading day after the release of the first "National Nine Articles", the Shanghai Composite Index rose by more than 2%, and a month after the release, the Shanghai Composite Index rose by more than 5%. In 2014, on the first trading day after the release of the second "National Nine Measures", the Shanghai Composite Index also rose by more than 2%, and rose by nearly 200 points in the following three months, with a cumulative increase of nearly 10%.
Hu Yuwei and Feng Tianze, policy analysts at China Securities Construction Investment, said that the new "National Nine Articles" are the historical inheritance of the first two and a new indication of the current situation of the capital market. After the release of the first two "National Nine Measures", the A-share market ushered in a sharp rise, and the new "National Nine Measures" may help the market out of the slow bull.
Yang Delong, chief economist of Qianhai Open Source Fund, said that the new "National Nine Articles" will take a variety of measures to improve the quality of listed companies, promote the high-quality development of the capital market, promote the strengthening of the rule of law in the capital market, greatly increase the cost of violations of laws and regulations, and increase the joint crackdown on securities and futures crimes, which are conducive to boosting investor confidence and will have a positive impact on the capital market.
Wu Kaida, chief analyst of strategy and president of the Policy Research Institute of Tianfeng Securities Research Institute, said that the "National Nine Articles" in 2004 and 2014 were released during the downturn in the stock market, and have a leading role in the development of the capital market in the future, and the A-share market has also entered a bull market. The implementation of the new "National Nine Articles" and the follow-up supporting rules will help the capital market to clean up the chaos, reshape the value, enhance the internal stability of the capital market, and the quality of listed companies is expected to be further improved, the capital structure is more reasonable, the basic system is more perfect, the market adjustment mechanism is more effective, the professional services are more high-quality, the regulatory law enforcement is more stringent, and the A-share market can better support the real economy and return investors.
(WeChat public account "Caizhi Headlines" is synthesized from: The Paper, Southern Weekly, Heilongjiang Daily, Hunan Daily, etc.)
Editor: Bai Jing
Proofreading: Fenghua
Review: Gong Zimo