Source: Futures Daily
“Let futures companies guide the production and operation planning of enterprise in the real economy ”
On September 14, Jiang Yang, Vice Chairman of China Securities Regulatory Commission (CSRC), noted in his speech on the 2017 Beijing CBD International Financial Round table that securities, fund and futures institutions should be urged to return to their original purpose, focus on their principal line of business, and reverse the trend of excessively pursuing scale and profit regardless of risks; thus, investment banks can actually act as the link between real enterprises and investors, and futures companies can actually guide the production and operation planning of real enterprises, so as to resolutely prevent “flow of capital from the real economy to the virtual economy” and “pure speculation”.
Jiang Yang said, finance is the core of modern economy, and the financial sector is responsible for facilitating the replacement of old growth drivers with new ones. As the economic growth slows down, real enterprises get less return on equity and face more risks, while traditional finance are less incentivized to serve the real economy. Nevertheless, through the development of a multi-level capital market, we can establish a set of risk and profit sharing mechanisms between investors and financing parties, with better risk identification and risk reward mechanisms as well as unique advantages in expanding financing channels, stimulating innovation and entrepreneurship of microcosmic entities and promoting the transition of economic growth drivers.
He also said, in recent years, with serving the real economy as its core mission，CSRC has planned and promoted the vigorous development of direct financing with consideration of the whole economic and financial layout, sped up the construction of a multi-level capital market system, improved the basic functions of the market, and greatly accelerated economic transformation and upgrading, structural adjustment and efficiency enhancement. Firstly, CSRC promoted the stable development of equity financing and accelerated capital formation: from the beginning of 2016 to the end of July 2017, the total amount of equity financing in various forms reached RMB 3.6 trillion. Secondly, CSRC expanded the service scope of the capital market to cover micro, small and medium-sized enterprises, so as to support innovation and entrepreneurship; at present, there are more than 11,000 NEEQ-listed companies which have financed a total of RMB 75.2 billion in the first seven months of 2017, and there are more than 20,000 enterprises listed in regional equity markets. Thirdly, CSRC actively promoted the role of the capital market as a major channel for acquisition and reorganization, so as to promote the adjustment of the stock of resources. From the beginning of 2016 to the end of July 2017, acquisition and reorganization transactions totaled RMB 3.38 trillion and 70% of which were initiated due to industry integration. Fourthly, CSRC enriched direct financing tools through promoting the coordinated development of the quantity and quality of the exchange-traded bond market, which since the beginning of 2016 raised over RMB 5.4 trillion through direct financing. In the first seven months of 2017, a total worth of RMB 75.9 billion debt-equity convertible products were issued (including convertible bonds and exchangeable bonds),with a year-on-year growth of 194%, and a total of RMB 410.8 billion were financed through asset securitization. The exchange-traded bond market is playing an increasingly important role in utilizing the idle assets of enterprises.
He stressed, financial innovation can be a double-edged sword. On the one hand, financial innovation in products, organization, institution and technology can improve the efficiency in allocating financial resources so as to promote the development of the real economy. On the other hand, if financial innovation disregards the innate needs of the real economy and instead serves the purpose of bypassing regulation, reckless expansion, internal capital circulation and flow of capital from the real economy to the virtual economy, then it may result in financial risks which in turn hinders development of the real economy.
And he also pointed out, that we should be tolerant but also prudential towards financial innovation, correctly handle the relation between innovation and regulation, so as to draw on advantages, avoid disadvantages and achieve well-regulated development. Firstly, serving the real economy should be the starting point and also the objective, to encourage the financial innovations that are beneficial to improving financial services for the weak links of the real economy, lowering cost of financing, improving the efficiency of resource allocation, while also supporting fin-tech enterprises with good corporate governance and broad development prospects to get better and stronger by taking advantage of the capital market. Secondly, securities, funds and futures institutions should be urged to return to their original purposes, focus on their principal line of business, and reverse the trend of excessively pursuing scale and profit regardless of risk, so that investment banks can actually act as the bridge between real enterprises and investors, and futures companies can actually guide the production and operation planning of real enterprises, so as to resolutely prevent “flow of capital from the real economy to the virtual economy” and “pure speculation”. Thirdly, comprehensive and strict regulation in accordance with the law should be vigorously promoted, so as to rectify false innovations that disregard the needs of the real economy, fight against attempts to touch the bottom line of law in the name of innovation, and provide better protection to investors’ legitimate rights and interests.