To build a "bull market engine", the country points to two major industries

Say money every day

2024-04-26 19:42Posted on the official account of Guangdong Tiantian Say Money

Original Liu Xiaobo

After the new Nine Articles, China's capital market will undergo important changes.

On April 25, several important financial news releases signaled that the country will make every effort to build a "bull market engine" and start the stock market.

Now let's use words to analyze this new change in more detail.

Recently, at the Standing Committee of the National People's Congress, the Vice Minister of Finance made a "Report on the Study and Handling of the Opinions of the State Council on the Deliberation of the Special Report on the Management of State-owned Assets of Financial Enterprises and the Situation of Rectification and Accountability."

In this report, several important information were revealed:

1. In view of the problems raised by the National People's Congress in the deliberation opinions of the National People's Congress, such as the "dominance of banking institutions" and the weakening of policy-based financial functions in recent years, the Ministry of Finance and financial management departments have promoted the further optimization of the layout of state-owned financial capital. Adjust the proportion of state-owned financial capital in banking, insurance, securities, and other industries in a timely manner.

2. Concentrate on building a "national team" in the financial industry. Promote large state-owned financial enterprises to benchmark against world-class financial enterprises, highlight their main business, do fine and professional, and continuously enhance their competitiveness and international influence.

3. Promote the head securities companies to become stronger and better.

4. Support the Shanghai and Shenzhen stock exchanges to build world-class exchanges.

5. Continue to strengthen the positioning of policy-based financial functions and increase supply. It is clear that policy-based finance should focus on serving the national strategy, and mainly do business that commercial finance cannot do and cannot do well.

6. Actively support major state-owned banks in issuing Total Loss-Absorbing Capacity (TLAC) bonds to enhance their risk resilience, and allow insurance companies to issue indefinite maturity bonds in the inter-bank bond market to replenish their capital, so as to broaden the channels for insurance companies to replenish their capital.

7. Support central financial enterprises to further strengthen and optimize, and promote local state-owned financial enterprises to focus on their main business, improve quality and efficiency, carry out characteristic operations based on local areas, and enhance their ability to serve the real economy and resist risks.

At the same time, Guolian Securities announced that the acquisition of Minsheng Securities has entered the substantive operation stage.

In order to make the "era of Indian stocks" stable and far-reaching, and truly realize the transformation of economic growth mode, the state will make a series of major adjustments to China's financial industry after summing up the lessons learned in the capital market in the past few years.

Its goal is to build a financial system that adapts to the "era of Indian stocks", create a "bull market engine", and give birth to a long-term bull market version of China.

Over the past 20 years, the main driving force of China's economy has been "large infrastructure + real estate + urbanization", and the financial means to protect it are "currency over-issuance + indirect financing". With the inflection point of the demographic dividend and the inflection point of real estate, the energy efficiency of this engine will continue to decline.

The new engine has been built since 2014, which is to establish a new model of "real economy + capital market (direct financing) + scientific and technological innovation" through the reform of the IPO registration system, so as to reduce the speed of money printing and increase the speed of stock issuance.

In the "era of printing money," the factors of production were bank loans, local government bonds, government approvals, land, and the property market, and the local governments, developers, and home buyers benefited the most; in the era of printing stocks, the factors of production were scientific and technological innovation, capital markets, and stocks, and entrepreneurs and inventors benefited the most.

But the stock is printed too much and fast, and the market can't afford it. Because we are still a retail market, we lack strong institutional investors, especially medium and long-term institutional investors who can execute national strategies.

For example, A-shares have long discriminated against state-owned enterprises and central enterprises, such as the banking sector has fallen below net assets for a long time, and large central enterprises with a price-earnings ratio of less than 10 times abound, so that these central enterprises have lost the ability to refinance the stock market, and listing has become undoubted. The stock market is keen to speculate on small-cap stocks, private corporate stocks, and various concept stocks.

To this end, the state has proposed the establishment of a valuation system with Chinese characteristics, but it is difficult to promote it because of the lack of a starting point.

The main problem is that the proportions of banking, insurance, and securities in the three major sectors of China's financial industry are seriously unbalanced, with the banking sector dominating the sector and insurance and securities being too weak.

The chart above shows that the total assets of the banking sector accounted for 90.5% of the total assets of the financial sector, while the securities sector accounted for only 3% and the insurance sector accounted for 6.5%.

Banks are largely unable to invest in equities due to regulatory restrictions. Those who can invest in stocks are mainly insurance funds and the securities industry. The proportion of the insurance industry investing in stocks is also limited.

The capital market is becoming more and more important and larger, with more than 5,000 listed companies.

But the securities industry, the largest industry that underpins it, accounts for only 3% of total financial assets. It's like a skyscraper, with only a 3-meter pile foundation, so it's no wonder if there is no problem.

In particular, we need to build a valuation system with Chinese characteristics in addition to the Western valuation system, and how can we turn our aspirations into reality without sufficient financial guidance?

The securities industry is very weak, and the securities companies and fund companies are not much bigger. In China, if a brokerage company earns more than 10 billion yuan in one year, it can enter the top three. But the profit of 10 billion yuan is only equivalent to the profit of ICBC in 10 days.

In 2023, the total profit of 145 securities firms in the country will be 137.8 billion yuan, which is only half of the profit of Agricultural Bank of China and 38% of the profit of Industrial and Commercial Bank of China!

It can be said that China's banking industry is as big as a dinosaur, the insurance industry is like a small teddy dog, and the securities industry is a skinny cat.

Therefore, the state proposed to "timely and reasonably adjust the proportion of state-owned financial capital in banking, insurance, securities and other industries" and "promote the head securities companies to become stronger and better", which is why Guolian acquired Minsheng Securities.

Looking forward to the future, the action of building a giant ship in the securities industry will continue, and the brokerage sector will be activated. In addition to encouraging mergers and acquisitions, it will also increase capital to large securities firms, so that they will become bigger and stronger, and can play a guiding role in the securities market.

There are also public fund companies, which will also become bigger and stronger. National teams such as Huijin are constantly buying ETFs, which is equivalent to making ETFs bigger.

State-owned insurance companies will also be expanded, and the government has put forward a plan to "allow insurance companies to issue indefinite bonds in the interbank bond market to replenish capital and broaden the channels for insurance companies to replenish capital".

In the banking sector, policy banks will narrow the scope of their business, mainly engage in "business that commercial finance cannot do and cannot do well", and cede ordinary business to commercial banks. Large state-owned commercial banks are under pressure to replenish their capital, and this time they have also opened a door: supporting large state-owned banks to issue total loss-absorbing capacity (TLAC) bonds to enhance risk resilience.

Local financial enterprises and central financial enterprises should also develop in a differentiated manner. In recent years, there have been many risks in small and medium-sized financial institutions, and the state has adjusted its strategy to grasp the big and small. Encouraging the merger of small and medium-sized financial institutions and reducing the number of financial institutions is not only convenient for supervision, but also conducive to improving the ability of financial institutions to resist risks.

In the future, the central financial enterprises will become bigger and stronger, and the local financial enterprises will mainly develop their own characteristics and no longer emphasize becoming bigger and stronger. In fact, this is also to concentrate resources to build a strong financial national team and a bull market engine.

China urgently needs a bull market to achieve economic transformation, guide residents to reallocate assets, and solve a series of problems such as the pension dilemma caused by the declining birthrate and aging population.

In other words, the state believes that the vast majority of houses in small and medium-sized cities are difficult to turn into pension tools, because the population is decreasing, the rental return rate is getting lower and lower, and the vacancy rate is getting higher and higher. A house in the core of a large city can be used as a pension, but there is a limit to what can be supported by a family.

The purchasing power of pensions is constantly eroded by inflation, and China urgently needs to establish a second and third pillar pensions, which are closely related to the healthy development of the capital market. Otherwise, there will be a shortage of assets, and the pooled pensions will not be able to appreciate.

Without an efficient, strong and creditworthy capital market, the road ahead will be tortuous and bumpy.

Deus Ex is the only option!

From the change of leadership of the China Securities Regulatory Commission, to the new nine articles of the country, to the current "adjustment of the proportion of state-owned financial capital in various financial industries, and to concentrate on building a national team in the financial industry", the goal is the same.

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