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Better regulated regional markets to nourish business

Zhang Yue
Updated: Jan 11,2017 10:48 PM

China will enhance regulations for regional equity markets to boost its role in diversified financing channels for the country’s medium-, small- and micro-sized businesses and encourage private investment.

The State Council’s executive meeting on Jan 11 chaired by Premier Li Keqiang approved a set of regulation updates.

The new regulation makes clear regional equity markets’ mandate as financing channels for local small businesses, and puts specific requirements on market operators and investors.

“A well-regulated regional equity market is fundamental to nurturing a multi-layered capital market. It will also contribute significantly to supporting medium-, small-, and micro-sized businesses and deleveraging efforts,” Premier Li said.

Regional equity markets offer financing flexibility for small business and technological innovation. While such firms tend to be financially vulnerable and carry greater risks, they are expected to play an important role in catalyzing economic transition and boosting social investment by introducing new business models and industries.

By November 2016, a total of 40 regional equity markets had been set up across the country, with over 15,900 companies.

The market is also faced with challenges, including lack of a well-defined legal status and undeveloped management and underdeveloped market functions. A better regulated regional equity market is a pressing item on the reform agenda.

The new regulations offer a set of new rules.

First, regional equity markets mainly provide financing services for medium-, small- and micro- businesses within its provincial borders. Those already running cross-provincial operations will need to comply within a set time period. Local government authorities are primarily responsible for managing and regulating the local equity market.

Second, each regional market is allowed to have only one operating agency, and those with multiple agencies require consolidation.

Third, a qualified investor plan will be put in place. Only legal entities that meet the requirements, partnership businesses and individuals with sound financial backgrounds and are able to sustain risks can join the market.

Fourth, stricter oversight is necessary for regulating the market. Local authorities and related central department are required to make joint efforts in regional equity market supervision. Provincial-level government will be responsible for market oversight and risk disposal, while China Securities Regulatory Commission (CSRC) is in charge of more specific regulations on issuing equities. Stress is placed on concerted oversight, coordination and services to protect investors and maintain market order.

“The regional equity market development needs to be sound and steady,” Premier Li said. “A better regulated market will lower risks and better facilitate growth of nascent and fledgling businesses.”

Meanwhile, related central departments and local governments must work together to keep improving the measures and building a more enabling environment in order to boost confidence, Premier Li said.