Securities Market Development After WTO

1
Securities Market Development After WTO

• Xinghai Fang
• Deputy Chief Executive Officer
• Shanghai Stock Exchange
• August 2, 2003

2
Overview

• Nature of financial sector risks in China
• Roles of securities market in China
• Main challenges facing the securities market
• Overcoming obstacles to securities market
  development

3
Nature of financial sector risks in China

• Asian financial crisis (five years ago)
• Tight government supervision (primitive, but no
  big market risks foreign borrowing, derivatives)
• Not captured by interest groups yet (real estate
  loans)
• Not in danger of collapse, but at a huge cost of
  inefficiency of capital utilization (low ROE)
• High growth rate and the need for financial
  reform

4
Roles of securities market in China

• Raising equity capital for firms
• Pricing assets (state owned assets)
• Improving corporate governance
• Sharing economic growth

5
Main challenges facing the securities market

• Valuation gaps between different stocks (some
  undervalued, some overvalued)
• Distinction between tradable and non-tradable
  shares tradable
• Restrictive approvals on share issuing (IPO and
  secondary offerings)
• Week corporate governance

6
Overcoming obstacles to securities market
development

• Maintaining strong supervision on trading
  behavior
• Introducing a lot more institutional investors
• Selling part of non-tradable shares to tradable
  shareholders at a below market price (case by
  case)
• Speeding up IPO and stop restrictive approvals
• Allowing free funds flows into the securities
  market (investment returns in securities market)
• More opening-up under the WTO framework