Producer: Wu Yunfeng Producer: Hu Wen Master pen: Zhang Xian Editor: Bao Fang UI design: Song Peng Front-end development: Sheng Weiwei

Pay tribute to the power of advancement

In the past 40 years, reform and opening up have brought about earth-shaking changes in China. Now, we are standing on the new historical node and reviewing the past, launching the 40th anniversary of the reform and opening up - paying tribute to the power of the march and interviewing the series of "seeing" series, looking for Every inch of the skin is engraved with the growth and exploration marks of New China, pushing the wheels of history to roll forward, looking forward to using their eyes to tell the past history and illuminate the way forward.

Guest
Xiao Wei

Professor of Peking University HSBC Business School and President of the Hong Kong International Finance Association. He has served as a professor at the University of Hong Kong, director of the Beijing Global Center at Columbia University, director of the Tsinghua-Brookings Center, and director of the research department of the Hong Kong Securities Regulatory Commission. Research areas include corporate, financial, and institutional reforms in China. During the work of the Hong Kong Securities Regulatory Commission, he has conducted policy research on the development, interaction and supervision of the capital markets in Hong Kong and the Mainland.

    [Core point of view]

    1. China has basically established two competing capital markets, Shanghai and Shenzhen. At the same time, it has introduced the Hong Kong market through the introduction of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Pass. From this point of view, China's capital market construction has been very successful. But over the years our total IPO fundraising has been too small and there is no mechanism for selecting quality companies.

    2. The examination and approval system has brought many problems, and the registration system should be implemented as soon as possible. At least one market should be taken to do the pilot. We must encourage high-quality enterprises to use the capital market to innovate and try. In an emerging market economy like China, there will inevitably be many companies that will rise in an instant but may eventually collapse. Therefore, we urgently need to establish an open market that can tolerate failure. In fact, it is allowed to delist from the market through an effective market elimination mechanism. Establish a reasonable market environment for survival of the fittest.

    3. According to the current market position, “National Progress” is a reasonable policy. However, it is necessary to establish a perfect exit mechanism at the same time of admission, including the orderly reduction of state-owned shares in the future bull market or the transfer to the social security fund.

    4. I believe that China's high growth in money supply is an endogenous phenomenon in the process of rapid marketization and monetization. It is behind the strong demand for monetized market transactions. The money in the market is not as much as some people think, some funds are locked by projects that should have gone bankrupt, but good projects are not supported by financing. If good companies can get loans, the effective supply they provide can drive down asset prices and inflation.

    5. To change the long-term sluggish situation of the stock market, we need to make up our mind to change the stock market from a subsidized financing platform that is “difficult to enter and hard to change” to the “Yi Jin Yi” survival and inferior real kung fu market, and use the timing of market fluctuations to decisively promote the system. Sexual reform.

    6. In response to current internal and external challenges, the central government needs to write off a large amount of historical bad debts and provide financing opportunities for potential high-quality enterprises and good projects through various macro policies, including increasing money supply and financial support. This is not to say that it is necessary to subsidize interest rate cuts. It is not a good enterprise project to survive by low interest rates and subsidies. It is important to allow good corporate projects to obtain financing at market rates rather than subsidizing certain industries and certain types of enterprises. When the entire macro economy enters a healthy easing but the price of funds is not too low, the reform will be easier, because the macro environment without subsidies will prevent speculation. Specific to the capital market, we should actively promote the registration system and introduce a competition mechanism between exchanges to facilitate innovative enterprises to use the judgment of capital market investors to try and make mistakes, and to create an “easy to enter and exit” capital market ecology to cultivate More and better unicorn companies in the future.

[Talking about the past]

"China has basically established two competitive capital markets, Shanghai and Shenzhen. At the same time, through the introduction of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Pass, the Hong Kong market will be connected. From this point of view, China's capital market construction has been very successful. Our total IPO fundraising has been too small over the years, and our market lacks the mechanism for selecting quality companies."

    The financial world: China's capital market has been in existence for decades, and its development speed is much faster than that of mature and developed capitalist countries. From a big perspective, how do you evaluate these years in China's capital market? From the perspective of volume, we are already the top three markets in the world, but in many ways, we are all in an immature state.

    Xiao Wei: So far, I think the construction of China's capital market is still very successful. Success is not to say how high the stock price is, but we have established two markets that are actually competing with each other in Shenzhen and Shanghai, and have organically linked the mainland market to the Hong Kong market through Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect and Bond Pass. In the future, the three markets will have cooperation and competition.

    As for the problem, although we are already in the forefront of the world in terms of scale, the total amount of IPO raised by the mainland exchanges in recent years is far less than that of Hong Kong. I think the most immature place in China's capital market is that it has not screened out China's best companies and has not established a space that can tolerate innovative companies' use of capital market trial and error.

    One of the main functions of the capital market is price discovery, which is to price assets. Currently, our exchanges have not yet given the ability to price assets in the global market, nor the ability to allocate funds to potential high-quality companies. In addition, risk management is not enough, and there are still big problems in corporate governance and information disclosure of listed companies.

    The financial world: You mentioned that the important function of the capital market is to allocate capital to the best companies, but isn't it enough for us to do this? At the beginning of the A-share market, the main reason was to get rid of the state-owned enterprises. This gene exists to this day, and many people believe that state-owned enterprises can't compete with private enterprises in the market. For the discovery of better enterprises, what do you think we can do in our capital market? ?

    Xiao Wei: We should not simply use the capital market as a market for raising funds, but also to make it a platform that allows companies to try and make mistakes. It is necessary to allow potential good companies to enter the capital market, grow in them, and accept the test of the market to get the rough and the truth.

    Our current capital market is that it is difficult to go in and it is difficult to go out. It can be seen that companies like Huawei are not listed in China. Many foreign-owned enterprises have made a lot of money in the Mainland and have not listed on our A-shares. This shows that in fact, A shares are not enough to absorb high-quality enterprises. This will affect the investor's mentality. When they don't see a good company in the market, they will be keen on short-selling.

[Talk about registration system]

"The approval system has brought many problems, and the registration system should be implemented as soon as possible. At least one market should be taken to do the pilot. We must allow enterprises to enter the capital market to try and make mistakes. In an emerging economy like China, there will inevitably be many companies that will rise in an instant but may eventually collapse. We urgently need to establish a market that can tolerate failed enterprises. In fact, it is allowed to delist from the market and establish a reasonable market environment for survival of the fittest through an effective market elimination mechanism."

    The financial world: So what do you mean that the registration system should be pushed as soon as possible?

    Xiao Wei: I think one of the main reasons why the Chinese stock market is not good enough is our approval system. Under the approval system, regulators have to spend a lot of energy to review the company, and can only review the past of the company, and can not predict or control the future of the company, and a market that is difficult to enter and exit is actually a listed company. One subsidy is to encourage enterprises to "seek rent." This has led some companies to simply spend money to "buy shells." However, some companies enjoy subsidies after listing but are not successful, but they remain in the stock market, which of course affects investors' perception of the entire market.

    The filing system is different. It does not have any restrictions. It only requires the company to describe its real operating conditions and future development plans in detail. It is up to the investors to judge whether it is worth investing. The regulators must do the most to ensure that the information provided by the company is correct. This will lower the threshold for enterprises to enter the market, and will not shut down the good companies like Ali and Tencent. Without subsidies, companies that want to speculate on fishing will not want to go public. This will encourage truly innovative companies to use the capital market to try and make mistakes, and emerging market economies like China will inevitably have many companies that will rise in an instant but may eventually collapse. This requires us to establish a stock market that can tolerate failed enterprises. In fact, it allows them to withdraw from the market and establish a reasonable market environment for survival of the fittest through an effective market elimination mechanism.

    At present, at least one market should be used to do the pilot of the registration system, and actively cultivate good enterprises in the future.

    In general, the standard for measuring a capital market is: can a good company quickly obtain capital growth, and when the market fluctuates greatly, the failed enterprise can quickly withdraw without causing systemic risks. This depends on whether the regulatory system can be in place, on the one hand, to ensure "easy to enter", on the other hand, to ensure "easy to go out."

    The financial world: You have been talking about the registration system, but it seems that the thunder and rain are always small. What are we missing now? Why has progress been so slow?

    Xiao Wei: First of all, there is a problem at the conceptual level. We have a deep-rooted concept that the capital market is a place where subsidies can be raised, and listings are like winning. Many people think that if the registration system is adopted and everyone gets subsidies, the money will not be enough, the stock price will fall, and the crisis will be triggered.

    This concept is wrong. The world has never lacked money. What is lacking is a quality enterprise. Letting the gates open, allowing more outstanding companies to enter the market, and constantly eliminating inferior enterprises, and increasing the return on investment through the market's survival of the fittest will attract global investment. If we stick to the approval system, it will only push up the listing "rental value" and corresponding subsidies, attracting a large number of opportunistic companies, and hindering the listing of outstanding companies like Ali and Tencent. However, the poor companies that have been listed under the approval system are unable to get out, and it is difficult for the market to have sustainable value creation.

[Talk about Guojinmin retreat]

"According to the current market position, “National Progress” is a reasonable policy. However, we must establish a perfect exit mechanism at the same time as the admission."

    The financial sector: The recent stock market turmoil, many local SASAC also jumped out to save the market, but the market is a bit worried about "national advancement and retreat", what do you think?

    Xiao Wei: According to the current market position, “National Progress” is a reasonable policy. Take Hong Kong as an example. During the Asian financial crisis, the Hang Seng Index fell from over 12,000 points to 6,000 points. The Hong Kong government intervened to buy 10% of blue chip stocks. When the stock market recovered to 12,000 points, it was sold. It is worth noting that the Hong Kong government has already paved the way for the exit mechanism when it comes to the market because it buys blue chips in the Hang Seng Index and it is very easy to sell when the market returns to normal. The exit after the rescue of Hong Kong is clean and transparent.

    From the perspective of bailout, China should learn from Hong Kong. We can see that although the Hong Kong market has risks when it falls, there will be no systematic financial risks, even if the Hang Seng Index fell to 6,000 points. Crisis, because some risk prevention systems, such as the regulation of equity pledges, are doing the forefront.

    When the market falls, buy it, and at the same time formulate an exit mechanism. When the market rises, sell it again, stabilize the market, and iron out the market overheating. These methods are worth learning. China's stock market has had three large fluctuations in 2007, 2015, and at present, and every time the stock market oscillates, it can promote some reforms. I hope we don't waste the current opportunity.

    In addition to the registration reform, after this crisis, China should prepare a preparatory plan to systematically promote the overheating of the stock market through the reduction of state-owned shares in the next stock market overheating, and the funds obtained after the reduction can be regarded as the future stock market. Quasi-funds.

    In the A-share market, the state-owned share capital is still well over 50%, which is related to the fact that our market mainly served the reform of state-owned enterprises. But the future positioning of A shares should be to find excellent innovative private enterprises. From the recent high-level statement, this has been noticed. General Secretary Xi Jinping clearly pointed out that the party Central Committee unswervingly supports the development of the private economy.

    Unlike state-owned enterprises, the private economy often faces a situation that is either particularly good or particularly bad. How to better serve the status quo of such private enterprises is something we need to consider, and I also propose the “easy to enter and exit” capital market. The main reason.

    The financial world: What changes need to be made in our system?

    Xiao Wei: First of all, we must define property rights. Second, we must create a competitive trading platform that cannot be monopolized and transparent. Third, establish an efficient and transparent dispute resolution mechanism. In fact, this is an important reason why many outstanding companies are not willing to list in China. According to China's traditional system, there are things to find leaders, small to unit leaders, big city leaders, provincial leaders, and central leaders. In fact, such a dispute resolution mechanism is not a manifestation of a mature market. This is also an important reason why our capital market needs to be open. We can learn from the experience of mature markets such as the United Kingdom, the United States, and Hong Kong to see how they use the judicial system to resolve property disputes in financial markets, without the government having a lot of trouble. .

[Talk about macroeconomics]

"I believe that China's high growth in money supply is an endogenous phenomenon in the process of rapid marketization and monetization. It is behind the strong demand for monetized market transactions. The money in the market is not as much as some people think, some funds are locked by projects that should have gone bankrupt, but good projects are not supported by financing. If good companies can get loans, the effective supply they provide can drive down asset prices and inflation."

    The financial world: What do you think about the recent market performance, the trend can be said to be very poor.

    Xiao Wei: The market is not performing well. In addition to the lack of the survival of the fittest mechanism in the market under the approval system mentioned above, it attracts good companies and is also related to the economic cycle. As a barometer of the economy, the stock market reflects the state of the real economy. The good and bad of the real economy fundamentally affect the performance of the stock market.

    When it comes to the real economy, there is always a saying that there is too much money in the market and it needs to be tightened. I don't think so. In fact, many things have little to do with the amount of money printed. The market generally believes that house prices have risen too much and are driven by monetary easing, but I think this is the result of market choices. It is obvious that many housing prices in remote and backward areas have fallen a lot, and have nothing to do with currency overshoot. The housing prices in the eastern coastal areas are much higher than those in the western regions, mainly the result of the people's own choice. Better employment opportunities and living environment in the east have attracted more people to travel, resulting in too much demand, but the supply has not kept up, and the market has pushed up house prices.

    The same is true for the stock market. We engage in IPO poverty alleviation, but the local business environment and business operations cannot keep up with the bad debts. Who will bear the loss? The failed enterprises can not withdraw from the market, and the bad debts of the banks are also difficult to write off. These have caused huge negative impacts on the macro economy, which actually dragged down the development of more competitive coastal areas. From a people-oriented perspective, poverty alleviation should focus on families in poor areas and provide them with opportunities to work in cities that are more suitable for living and development.

    I think the central government should come forward to offset the structural bad debts caused by the introduction of market mechanisms, because this is the consequence of China's reform and opening up. We have always said that the market should play a leading role in the allocation of resources, but the result of market competition will certainly have a win and lose, and it is impossible to win only. These bad debts accumulated in the past history are incapable of returning in backward areas. They can only be written off by issuing national debts, and the Chinese economy can be lightly loaded.

    The financial world: So you think that there is not much money in the market, but less?

    Xiao Wei: Objectively, China has built a lot of houses, and housing prices in the coastal areas have also risen a lot. These real estates need to increase their money supply to provide liquidity when they use the mortgage loan to conduct monetization market transactions. The rise in housing prices is an important market signal. If prices fluctuate too fast, it may lead to short-term speculation and need to be regulated by some measures. However, housing in China is bought by ordinary people with their own money. The market demand reflected is real. Yes, we should learn from the experience of mature economies in the United States and Hong Kong in this respect, and provide sufficient liquidity and reasonable market interest rates for ordinary people's housing loans. Just to meet the demand for Chinese family housing mortgage loans, we need a very high money supply growth, because the number of houses has increased, and prices have risen. This is actually a global trend.

    Therefore, I believe that China's high growth in money supply is an endogenous phenomenon in the process of rapid marketization and monetization. It is behind the strong demand for monetized market transactions. The money in the market is not as much as some people think, some funds are locked by projects that should have gone bankrupt, but good projects are not supported by financing. If good companies can get loans, the effective supply they provide can drive down asset prices and inflation.

    The financial world: If it is reflected in the capital market, isn't money enough?

    Xiao Wei: It should be that the government and some investors are worried that the money invested in the capital market is not enough. However, the capital market is not short of money. The real problem is that there are few good companies. If the capital market has the ability to attract good companies, international capital and private capital will go. The development of a good enterprise is inseparable from a good macro environment and a good real economy. But in fact, there are many good regions, good industries, and good companies in China, but there are also many bad ones. Therefore, the key is to make money supply to good companies, good projects to finance at market costs, and reduce blind subsidies and low-interest financing, which fundamentally block speculative “rent-seeking” behavior.

    The financial world: If the central government came forward to write off bad debts, isn't our balance sheet worse? Are we capable of eating these bad debts?

    Xiao Wei: Compared with the value created by the 40 years of reform and opening up, our bad debts can be said to be a slap in the face. We are fully capable of flushing out these bad debts. Recently, the International Monetary Fund has also issued a report proposing to examine the quality and policies of its macro economy with a country's net state assets rather than debt. China’s state-owned assets have appreciated tremendously over the past 40 years. The central government’s net assets account for nearly 50% of GDP, while the US is below 50%. The overall net assets of Chinese local governments exceed 120% of GDP, but the US is below 50%. The leverage ratio of the Chinese government and the family is actually not high by international comparison. The main problem is that some bad areas and failed enterprises cannot be written off because there is almost no bankruptcy mechanism.

    The financial world: So is it because of our economy?

    Xiao Wei: The performance of the stock market is of course related to the status quo of our entire economy, including Sino-US trade frictions, the tightening of the macroeconomic environment in the past few years, and the impact of entrepreneurs' complex international and domestic environmental confidence. What we have to do now is to reverse our confidence through reform.

    We have to admit that the market economy can't predict it. Encourage entrepreneurs to try and make mistakes. You can't just succeed without letting you fail. In the face of the possibility of failure, the government must have institutional arrangements to deal with failed enterprises, projects, and regions without affecting the success of successful enterprises, projects, and regions. The government must create a good macro environment for good companies, use good business, good projects, and good regional performance to hedge the performance of failed companies, projects, and regions, so that the overall economy will enter a virtuous circle.

[Talk about supervision and reform]

"To change the long-term sluggish situation of the stock market, we need to make up our minds to change the stock market from a subsidized financing platform that is “difficult to enter and hard to change” to the “Yi Jin Yi” survival and inferior real kung fu market, and use the timing of market fluctuations to decisively promote systemic reform. ."

    The financial world: Finally, talk about financial supervision. In fact, the CSRC is exhausted and has done a lot of things, but investors do not seem to buy it. What do you think is the reason? What are the reasons for our supervision to reflect?

    Xiao Wei: Why do investors complain about the Securities and Futures Commission? Because they bought the shares of the company, the SFC reviewed and approved the listing. However, the CSRC is also very embarrassed. Their staff members have low income, high pressure and heavy tasks. They have to review the accounting level as well as the legal level, and even participate in solving social disputes. How can they manage it?

    Unlike Hong Kong, once the SFC finds problems, it will be transferred to the Economic Crimes Section. The judicial system will take over all crimes. In the Mainland, where the judicial litigation system is not yet sound, most of the problems seem to require the SFC to deal with.

[Talk about reform]

"In response to the current internal and external challenges, the central government needs to write off a large amount of historical bad debts, and provide financing opportunities for potential high-quality enterprises and good projects through various macro policies, including increasing money supply and financial support. This is not to say that it is necessary to subsidize interest rate cuts. It is not a good enterprise project to survive by low interest rates and subsidies. It is important to allow good corporate projects to obtain financing at market rates rather than subsidizing certain industries and certain types of enterprises. When the entire macro economy enters a healthy easing but the price of funds is not too low, the reform will be easier, because the macro environment without subsidies will prevent speculation. Specific to the capital market, we should actively promote the registration system and introduce a competition mechanism between exchanges to facilitate innovative enterprises to use the judgment of capital market investors to try and make mistakes, and to create an “easy to enter and exit” capital market ecology to cultivate More and better unicorn companies in the future."

    The financial world: So we missed the best time window for reforms?

    Xiao Wei: As long as you want to reform, you will never miss it.

    In response to the current internal and external challenges, the central government needs to write off a large amount of historical bad debts, and provide financing opportunities for potential high-quality enterprises and good projects through various macro policies, including increasing money supply and financial support. This is not to say that it is necessary to subsidize interest rate cuts. It is not a good enterprise project to survive by low interest rates and subsidies. It is important to allow good corporate projects to obtain financing at market rates rather than subsidizing certain industries and certain types of enterprises. When the entire macro economy enters a healthy easing but the price of funds is not too low, the reform will be easier, because the macro environment without subsidies will prevent speculation. Specific to the capital market, we should actively promote the registration system and introduce a competition mechanism between exchanges to facilitate innovative enterprises to use the judgment of capital market investors to try and make mistakes, and to create an “easy to enter and exit” capital market ecology to cultivate More and better unicorn companies in the future.

    In fact, some reforms have been promoted now, including the reduction of our state-owned shares, which are entered by long-term funds such as social security funds, and the state has changed from managing enterprises to managing capital.