As China's A-share market celebrates its 35th anniversary, it stands as a testament to remarkable growth and resilience. In 2023, the total market capitalization soared to $10.89 trillion, making it the second-largest in the world after the United States, according to the World Federation of Exchanges.
However, the journey hasn't been without its challenges. Since reaching a peak of 3,731 points on February 18, 2021, the Shanghai Composite Index experienced a downward trend, prompting the China Securities Regulatory Commission (CSRC) to implement a series of tightening measures in the latter half of 2023.
These measures include increasing the margin requirement for securities lending from 50% to 80%, restricting share reductions for companies that haven't distributed dividends in the past three years, and suspending loans of restricted shares. Initially, the market responded with a 6.3% decline between January 29 and February 5, 2024. However, as the policies began to take root, the market rebounded, recovering most of the losses and embarking on a 58% surge for the remainder of the year.
Experts believe that the effectiveness of these policy measures hinges on their ability to address fundamental market issues, particularly the supply-demand imbalance in the A-share market. Over the past decade, equity financing has surged by 182%, totaling 12.92 trillion yuan ($1.81 trillion), while China's GDP grew by an average of 6.8% annually. This growth has been overshadowed by a staggering increase in debt financing, which surged by 5.32 times, now accounting for 48% of the total GDP, exerting significant pressure on the market.
In response to severe market fluctuations, the CSRC has also implemented short-term pauses in the IPO process since September last year. This slowdown in approving IPOs and seasoned financing has led to a decline in equity financing from 664.9 billion yuan to 212.8 billion yuan over six months. These pauses aim to provide the liquidity market with a breather while allowing authorities to develop long-term mechanisms that balance market growth with economic stability.
Beyond regulatory tightening, the CSRC has emphasized the importance of listed companies in creating and maintaining investment value. In a seminar held on February 5, the commission urged companies to enhance investment returns through share buybacks, dividend distributions, and strategic mergers and acquisitions (M&A). By encouraging high-quality asset acquisitions and shedding less productive capabilities, these measures aim to attract both day traders and long-term investors.
If effectively implemented, these policies could transform China's A-share market into a more constructive and attractive environment for investors, fostering sustained growth and stability in one of the world's most significant financial markets.
Reference(s):
China's policy measures to stabilize stock market to be effective
cgtn.com
