As China’s A-share market approaches its 35th anniversary, the landscape of the world’s second-largest stock market is witnessing significant shifts. With a total market capitalization reaching $10.89 trillion in 2023, second only to that of the United States, China’s equity market stands as a testament to its rapid economic growth.
Despite reaching a peak on February 18, 2021, when the Shanghai Composite Index climbed to 3,731 points, the market has faced a downward trend in the ensuing years. Recognizing the need to address this decline, the China Securities Regulatory Commission (CSRC) has introduced a series of policy measures aimed at stabilizing the market and boosting investor confidence.
Since the second half of 2023, the CSRC has implemented tightening measures, including raising the margin requirement for securities lending from 50 percent to 80 percent, restricting share reductions for companies that have not distributed dividends in the past three years, and suspending loans of restricted shares. These actions are designed to address the supply-demand imbalance in the A-share market, which has seen equity financing surge by 182 percent over the past decade to 12.92 trillion yuan ($1.81 trillion).
To alleviate immediate pressure, the CSRC has slowed down the approval process for initial public offerings (IPOs) and seasoned financing, reducing equity financing over the past six months from 664.9 billion yuan to 212.8 billion yuan. This strategic pause allows the market to regain balance and provides time for the development of a long-term mechanism to synchronize market growth with the overall economy.
In addition to managing supply, the CSRC is encouraging listed companies to take active responsibility for enhancing investor value. In a seminar earlier this year, the regulatory body urged companies to implement strategies such as share buybacks, increasing holdings by controlling shareholders, regular dividend distributions, and pursuing mergers and acquisitions (M&A). These measures are intended to increase returns for investors and stimulate market vitality.
The promotion of M&A activities, supported by the adoption of a registration system initiated last year, is particularly notable. By bringing in high-quality assets and streamlining operations, companies can enhance their investment value, making the market more attractive to both day traders and long-term investors.
These policy measures, if effectively implemented, have the potential to create a more constructive and productive investment environment. As China continues to align its stock market practices with its economic growth, investor confidence may see a significant boost, contributing to the stabilization and future prosperity of the A-share market.
Reference(s):
China's policy measures to stabilize stock market to be effective
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