The intricate dynamics of investment and financing within capital markets reveal a symbiotic relationship, where each supports and enhances the otherIn response to evolving economic challenges, the Central Economic Work Conference has underscored the importance of deepening comprehensive reforms in capital market investment and financingKey tasks have been outlined to create an environment conducive to long-term investments and funding, which includes a more robust multi-tiered capital market servicing framework and gradual advancements in interconnectedness with foreign marketsThese initiatives are intended to strengthen the pivotal role of capital markets in economic facilitation.

Insights from various industry experts suggest that steadily deepening reforms in the capital market investment and financing landscape represent a complex and systematic endeavorFuture reform efforts must prioritize a harmonious balance between investments and financing, ensuring a comprehensive equilibrium between quantity and quality, while also establishing effective accountability measures

Such alignment aims to match funding supply with financing demand, thereby propelling high-quality capital market development that effectively serves the real economy.

One of the significant challenges has been to eliminate bottlenecks hindering the influx of long-term funds into the markets, and establishing a steady stream of financial resources is vital for fostering a coordinated development of investment and financing.

The China Securities Regulatory Commission (CSRC) has indicated a commitment to facilitating the entry of long-term funds into the marketThis initiative includes refining the regulatory environment to better accommodate the needs of pension funds, insurance companies, and other long-term investorsThe goal is to clear existing obstacles that limit these funds, essentially invigorating the system with “fresh water.”

At a recent financial symposium, CSRC Chairman Wu Qing articulated three key points necessary for balanced investment and financing: firstly, achieving an overall balance in quantity; secondly, enhancing quality; and thirdly, ensuring effective checks and balances regarding responsibilities and rights.

This year, notable efforts have been made to engage long-term capital in the market effectively

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The authorities have accelerated the implementation of guidance for long-term fund integration, promoted the development of equity public funds, and tailored strategies to address the obstacles faced by long-term fundsAdditionally, stock repurchase policies and loan support for increasing stock holdings are also poised to inject increased capital into A-share markets.

Data illustrates the progress made in this area; the scale of equity-based ETFs has surged, surpassing significant thresholds of 20 trillion and 30 trillion yuanAs of December 20, 2023, statistics from Wind disclose that the scale of stock-based ETFs reached approximately 30 trillion yuan, marking an impressive annual growth rate of about 106.6%.

Looking ahead, economist Chen Li from Chuan Cai Securities anticipates that the upcoming phase will further zero in on resolving challenges surrounding long-term fund involvement in the markets

Chen outlines three strategic directions for this endeavor: enhancing the capital market ecosystem to inspire longer-term investments, refining fundamental market regulations to better accommodate long-term investors, and expanding the ETF market to inject additional funds while fulfilling the asset allocation needs of residents.

Innovative monetary policy instruments, such as the convenience swap between securities fund insurance companies and stock repurchase loan policies, are expected to draw in more long-term funds, and improve market risk appetiteGoldman Sachs' chief China equity strategist, Liu Jinjing, posits that thanks to these newly established tools, the total amount of dividends and repurchases from Chinese listed companies could exceed 3 trillion yuan by 2025.

In tandem with reforms focusing on investments, the financing side of capital markets has not been neglected

According to Zhao Xijun, co-director of the China Capital Market Research Institute at Renmin University, one fundamental purpose of the capital market is to bolster the real economy and nurture new productive forcesHe emphasizes the importance of reinforcing reforms in areas such as underwriting and mergers and acquisitions to enhance the system’s capacity to support “hard technology.”

Within this year, a range of policies has been enacted to bolster high-quality innovation enterprises, with a concerted focus on fostering regulatory adaptabilityThe CSRC has introduced several rules aimed at enhancing institutional inclusivity and responsiveness, including the "Sixteen Articles for Science and Technology Innovation" and the "Eight Articles for the Science and Technology Innovation Board," which collectively seek to refine the framework supporting techno-innovative businesses.

Notably, approximately 70% of companies listed this year can be classified as specialized, refined, distinctive, and innovative enterprises

Take, for example, the Science and Technology Innovation Board's performance over the last six months; it issued several encouraging signals for outstanding “hard technology” firmsThe two previously unprofitable enterprises, Xi'an Yicai and Huandong Technology, recently received auction invitations along with acceptance of their IPO applicationsFurthermore, the listing process moved smoothly for several firms, with the review committee approving five companies and enabling the registration of six firms within the same timeframe.

Numerous businesses currently trading on the board exemplify technological innovation and domestic leadership, such as Jiachi Technology, recognized as a leader in stealth material development, and Xiangyin Jinka, renowned for precision components in semiconductor manufacturing prompted by a drive to break international monopolies.

Despite these advancements, challenges remain in harmonizing the interplay between technological innovation and capital market development

Presently, there are significant obstacles that necessitate innovative solutions capable of surmounting institutional constraints and maximizing the synergy between technology and capitalThe CSRC advocates a deeper and more robust implementation of stock issuance and registration systems, intensifying their efforts regarding the Science and Technology Innovation Board, the Growth Enterprise Market, and the Beijing Stock Exchange while furthering the establishment of a well-rounded multi-layered service framework for capital markets.

To tackle the critical issues surrounding primary and secondary market pricing and investor protection that limit market functionality, the CSRC intends to utilize representative case studies to facilitate institutional improvementsBy synergizing various reform efforts while ensuring effectiveness and feasibility, they aim to realize substantial outcomes across all aspects of reform.

Professor Tian Lihui, director of the Financial Development Research Institute at Nankai University, asserts that a multi-tiered capital market has significantly supported high-tech enterprises and emerging strategic industries, thereby fostering implementation of an innovation-driven development strategy

He expresses hope that ongoing reforms will yield diverse financing channels for quality enterprises at varying developmental stages, ultimately assisting in the optimization and upgrading of industrial structures.

As the channels for high-quality, two-way openness continue to broaden, an increasing number of companies are setting their sights on listings abroadAs of December 20, more than a hundred enterprises have successfully registered for overseas IPOs, predominantly aiming at listing in Hong KongNoteworthy enterprises like Midea Group, SF Express, and ChaBaiDao are examples of this trend.

Sector-wise, outgoing listings are primarily undertaken by innovative companies actively pursuing international market expansions, particularly within technology sectors and healthcareThe supportive stance of regulatory authorities is evident, with 220 companies having received notification for their registration

The CSRC has expressed intent to continually optimize the mechanisms facilitating interconnectedness with foreign markets while enhancing regulatory coordination for overseas listings.

In discussing the regulatory framework for international openness, the CSRC has emphasized its commitment to using openness as a catalyst for reformThis context underscores the strategic goal of progressively advancing interconnectedness with foreign markets, thereby better harnessing the advantages of both domestic and international resources for enterprises.

Liu Wei, a partner at GuoHao Law Firm in Shanghai, highlights the critical role of overseas listings as a significant pathway for domestic companies to tap into foreign investmentThe ease of trading for listed stocks serves not only as an attractive measure for foreign investors but also reflects the ongoing expansion of China’s capital market openness to the global arena.