China’s Stock Market Offers Growing Support to the Real Economy: PHBS Think Tank Report

The capability of China’s stock market to serve the real economy was improved last year with the implementation of the registration-based initial public offering (IPO) system, according to a report recently released by Peking University, HSBC Business School (PHBS) Think Tank. The report studies characteristics of initial public offering (IPO) and refinancing, and the relevant policies and systems of the Chinese equity market, as well as the remaining problems in 2021.

Compared to previous years, it finds that the proportion of IPOs of industrial companies has increased 6.3%. In addition, the second-board markets (ChiNext and Sci-Tech Innovation Board) have provided more financing support for small and medium-sized private enterprises (SMEs), especially those in the industrial, materials, IT, and healthcare sectors. All of these imply growing support in the capital market to serve China’s real economy.

In addition, the newly-established Beijing Stock Exchange (BSE) marks a key step in China’s efforts to deepen capital market reform, according to the report. Of the first batch of 81 companies listed on the newly-established (BSE), 78 % are SMEs in advanced manufacturing, modern services, high-tech services and strategic industries. Based on this, the report suggests that the BSE is playing a significant role in stimulating the direct financing of SMEs in the National Equities Exchange and Quotations, further enhancing the financing capability of China’s multi-level capital market.

However, due to mixed pressure from refinancing, financial fraud, ineffective regulation, and irrational speculators, China’s stock market is still dealing with multiple challenges to attract medium and long-term funds, according to the Think Tank. Researchers suggest that an effective issuance system, a transaction system, and a transparent regulation need to be implemented. For instance, the efficiency of the registration-based IPO system requires highly transparent information disclosure and proactive financing regulation. Effective policies to attract long-term capital and improve risk management are needed to curb the irrational speculation of both individual and institutional investors and ensure sustainable development of the equity market.

Source: Peking University HSBC Business School