Openness and Cooperation: the Role of Capital Markets in Post-Pandemic Recovery
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Keynote Speech by Yi Huiman, Chairman of CSRC
at the Opening Ceremony of the 60th WFE General Assembly &Annual Meeting
（6 September 2021）
Honorable Dr. Urs Rüegsegger, Chairman of WFE
Honorable Ms. Nandini Sukumar, CEO of WFE
Honorable Mr. Qin Weizhong, Mayor of Shenzhen
Mr. Wang Jianjun, Chairman of Shenzhen Stock Exchange
Distinguished guests online and on-site,
Ladies and gentlemen,
Good morning, and good afternoon! It’s my great pleasure to attend the 60th General Assembly &Annual Meeting of the World Federation of Exchanges (WFE) in 2021. On behalf of China Securities Regulatory Commission, I’d like to extend my sincere congratulations on the opening of the conference and my warmest welcome to all the guests both online and on-site.
In recent years, the world’s political and economic landscapes have undergone profound and complex changes. The outbreak and resurgence of COVID-19 pandemic have posed significant challenges to the global economic recovery and financial stability. The spill-over effect has been arising from marginal adjustments in monetary and financial policies by major economies. As a community with shared future, the world must join hands in responding to the pandemic and together shoulder the responsibility of maintaining global economic growth and financial stability. We are happy to find that the WFE conference, with a theme on “Resilience &Recovery: Market Infrastructure in a Pandemic World”, covers a broad range of topics such as global economic and financial prospects in a post-pandemic world, openness and cooperation among global capital markets, the role of financial infrastructures and implications of technological innovation. I believe this conference serves as a valuable opportunity for participants to share their insights, practices and experiences, so as to enhance mutual trust, overcome current difficulties, respond to common risks and challenges, and strengthen international financial governance systems. Taking this opportunity, I’d like to share with you some of my observations and thoughts in this regard.
Firstly, capital markets play a vital role in bolstering the steady recovery of the global economy.
Upon the outbreak of the pandemic, countries and regions around the world stepped up coordination of macroeconomic policies, and adopted a combination of fiscal, monetary and employment policies, aiming to restore the economic and financial order. Overall, the global capital markets weathered the blow of the pandemic, demonstrated strong resilience, and quickly restored normal functioning. On the one hand, the stock markets in major economies have achieved sound performance, which played an important role in stabilizing confidence and improving expectations. Major markets around the world have all recovered and maintained a sound momentum after experiencing severe turbulence at the beginning of last year. Major stock indexes have mostly recovered or even surpassed their pre-pandemic levels. The steady operation of the capital markets is in itself an important part of economic recovery. On the other hand, well-functioning capital markets strongly supported the recovery and development of the real economy. Securities regulators around the world have taken active measures to further facilitate corporate financing via innovative regulatory tools. In 2020, the market financing activities in major capital markets generally recorded a steady growth, creating favorable conditions for enterprises to resume operation and production, which helped accelerate economic reopening and recovery. Thanks to concerted efforts of all parties, the Chinese capital market reopened as scheduled after the 2020 Lunar New Year holiday and maintained normal operation ever since. A series of policy measures offering regulatory flexibility and accommodation have been rolled out, providing strong support for China to take the lead in achieving positive economic growth.
The global response to the pandemic has taught us again that the root and soul of the capital market lies in its role to serve the real economy and to protect legitimate rights and interests of investors, which should also be the primary goal for exchanges and securities regulators. It should be noted that the direction of change of pandemic remains uncertain, and the global economic recovery is still unstable and uneven. We must stick to the mission and responsibility of the capital markets, further improve the functioning of the markets, so that the capital markets can better serve the real economy, and the real economy can better support the capital markets, thus creating a virtuous cycle between the two. At the same time, we must also be vigilant against bubbles in self-serving circulation of funds within the financial sector and prevent risks caused by deviation from the real economy. Faced with multiple challenges including the pandemic, rising commodities prices, and supply chain disruptions, SMEs are now in a relatively more difficult situation. Supporting SMEs is an important task for achieving global economic recovery and growth. At the recently held 2021 China International Fair for Trade in Services (CIFTIS), President Xi Jinping announced the establishment of Beijing Stock Exchange as a primary platform serving innovation-oriented SMEs, by reforming the New Third Board (National Equities Exchange and Quotations) , and reiterated that China will continue to support the innovation and development of SMEs. We will take this opportunity to build up a full-cycle institutional arrangement for capital markets to serve the innovation and development of SMEs.
Secondly, openness and cooperation are inexorable trends for integrated development of global capital markets
Openness and cooperation has been and will always be the driving force for the prosperity of global capital markets. In recent decades, against the backdrop of economic globalization and regional integration, capital markets in various countries and regions continue to interact and intermingle with each other, which has formed an inseparable community of interdependence. International organizations such as IOSCO and WFE are witnesses and advocates of these historical advancements. Listed companies, financial firms and investors are all globalized in today’s capital markets. There should never be a zero-sum game among the markets, where benefit to one means benefit to all and harm to one means harm to all. Major financial centers around the world are all located in areas where capital markets are well-developed. Capital markets in financial centers play a pivotal role in pooling funds and allocating resources on a global scale, they should be able to serve global investors and facilitate cross-border investment and financing, instead of becoming a governmental instrument to sanction or suppress others. As critical infrastructure of global financial centers, the exchanges are expected to continue serving as bridges for international communication and coordination, so as to create an open and cooperative environment in the best interest of global capital markets.
As a result of China’s reform and opening-up, China’s capital markets have always been developing through reforms, progressing through opening-up, and achieving win-win results through cooperation. We have witnessed increasingly profound structural changes in China’s capital markets, with fundamental institutions keep improving, market ecology continues to optimize, and market openness has been taken to the next level in all aspects. Despite the impact and disruption caused by COVID-19, the pace of reform and opening-up of China’s capital market has further accelerated, rather than slowing down. The registration-based IPO regime for the STAR Board and the ChiNext Market has been implemented steadily. Foreign equity cap has been entirely eliminated for securities firms, fund managers and futures companies, where national treatment has been applied comprehensively. The Hong Kong Connect, London Connect, and ETF connectivity schemes continue to expand. Product innovations including REITs, futures and options are progressing steadily, attracting more active participation by global financial institutions and investors.
The two-way opening-up of China’s capital market and corresponding institutional arrangements epitomize China’s unswerving drive for reform and opening-up. In accordance with the central government’s decision to promote a new-round of higher-level opening up to the outside world, we are working on relevant measures to further expand opening-up, including further enrichment of eligible securities for the Hong Kong Connect, expanding and improving the London Connect scheme, opening up more commodities and financial futures products for foreign participation, facilitating the recognition of professional qualifications for international practitioners, in order to provide overseas institutions and investors with fair, efficient, and convenient access to China’s capital markets. Against the backdrop of the pandemic, securities regulators around the globe shall better play their roles to jointly resolve various problems via cooperation by upholding rules of the market and the professionalism. Based on mutual respect, effective communication, and a win-win mindset, the CSRC will carry out pragmatic cooperation with relevant counterparts in areas such as supervision on Chinese companies listed overseas, cross-border audit oversight and enforcement cooperation and strive for greater progress and more mutually beneficial results.
Thirdly, new trends and challenges call for exchanges to enhance all-round capabilities.
As global capital markets evolve rapidly, the exchanges, as the organizer and order keeper for the markets, are important infrastructures that safeguard the robustness and efficiency of the markets. In recent years, the advancement of new generation information technologies such as AI, big data and blockchain, the rapid innovation of financial instruments, as well as the impact of the COVID-19 pandemic, are deeply transforming the operations of capital markets and the eco-systems of the financial industry. These have brought forth unprecedented challenges to the traditional management and operational practices of exchanges around the world. Facing these challenges, exchanges shall remain vigilant against potential risks, prepare for the worst , and think ahead on some strategic and long-term issues relevant to the sustainable development of capital markets. Exchanges shall strengthen capacity building and take active actions to improve fundamental institutions, mitigate financial risks and serve the real economy. In this regard, I would like to touch upon a few questions for further discussions during the Conference.
First, smart supervision by exchanges in a digital context. While enhancing the efficiency of financial services and accessibility of capital markets, technological advancements also add to cross-border, cross-market and cross-product risks. Meanwhile, misconducts tend to be increasingly covert, complex and intelligent. Exchanges need to consider whether their front-line supervision activities are equipped with necessary technological means to adapt and respond to such trends. And in what areas are improvements required?
Second, the changes of investors’ behavior brought by the development of social networking platforms. Recently, the “meme stock movement” aroused worldwide attention and discussions. Under the combined impacts of internet technology innovation, spread of self-media, and drawbacks of short-selling mechanism, investors’ behavior and its market influence have been very different from the past. Do exchanges have sufficient understanding of the new developments? Can exchanges take effective actions in response?
Third, innovations in issuance and listing of securities. Over the last two years, financing activities through SPAC have seen significant growth. New listing models including direct listing have also expanded, posing disruptive challenges to the traditional IPOs. Some believe that these non-traditional models are in essence virtualizing IPOs, thus giving rise to regulatory issues around corporate governance, information disclosure and investor protection. We are closely watching the development. Are these new models suitable for all markets alike? This probably requires further in-depth study.
Fourth, regulatory issues around new trading patterns. In mature markets, algorithmic and high-frequency trading are commonly practiced. While enhancing liquidity and pricing efficiency, such practices tend to cause herd effect, higher volatility, and questions over market fairness. Recent years witnessed rapid growth of algorithmic trading in China. How do exchanges assess the evolving trading structure and new trading patterns in the markets? I hope you can share your views and experiences.
Distinguished guests, friends.
Entering a new development stage, China is applying the new development philosophy, and fostering the new development paradigm. Meanwhile, China’s capital market will also enter a new stage of development characterized by greater inclusiveness and higher quality. We sincerely hope to strengthen communication, cooperation, experience sharing and mutual trust with exchanges, financial institutions and regulatory authorities around the world. Let’s join our hands to overcome challenges posed by the pandemic and make our due contribution to the recovery and growth of the global economy!
I wish the WFE general assembly and annual meeting a great success! Thank you all!