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Promoted the Creation of Diverse Social Assets and Expanded Citizens' Investment Options

The capital market cannot develop without the constant growth of the number and scale of financial products. For more than 20 years, Chinese securities firms have been actively creating new products in line with the competent requirements and development laws of the capital market. They have been constantly enriching products and smoothing investment channels to meet the financial demands of corporate entities and individuals, thus playing an important intermediary role in the capital market.

With the financial assets structure further adjusted, and with the number and market values of shares, bonds and various wealth management products constantly improved. Figures 1.9 and 1.10 and Tables 1.9, 1.10, 1.11, and 1.12 provide a detailed illustration of the status of stocks, bonds, funds, and wealth management products, as well as investor accounts and transactions.

Strongly Enhanced the Development of Transparency in the Capital Market

The information disclosure system is the basic system in the capital market. It is also an important backup for boosting the highly effective flow of social capital and improving market restrictions. After officially taking over the securities regulation responsibility, the CSRC has been engaged in promoting the development of an information disclosure system among public companies since 1998, and has in the process taken a series of major measures. After the equity separation reform in 2005, the CSRC devoted major efforts to the development of an information disclosure system among

TABLE 1.7 Sources and Application Structure of Funds at Chinese Financial Institutions in 1999 (RMB in Billions)

Fund Sources, Totals

12,323.06

Applications of Funds, Totals

12,323.06

Different savings

10,877.89

Different loans

9,373.43

Corporate savings

3,718.24

Short-term loans

6,388.76

Government savings

212.84

Industrial loans

1,794.89

Savings of social groups

181.45

Commercial loans

1,989.09

Savings deposits

5,962.18

Construction loans

147.69

Current savings

1,466.67

Agricultural loans

479.24

Fixed savings

4,495.51

Other short-term loans

1,977.86

Agricultural savings

212.63

Mid- and long-term loans

2,396.83

Trust savings

307.22

Trust loans

250.46

Other savings

283.37

Other loans

337.38

Financial bonds

3.95

Securities and investments

1,250.58

Currency in circulation

1,345.55

Funds outstanding for gold and silver

1.20

Debts in international

37.19

Funds outstanding for foreign

1,479.24

financial institutions

exchange

Others

58.48

Government borrowings

158.21

Assets against international

60.41

financial institutions

Source: PBC website.

public companies. It made stricter and more detailed regulations in the areas of sponsorship, underwriting, constant regulation, and standardization of information disclosure, resulting in the rather complete system we see today.

The most important disclosures are the board of directors (BOD) report and the financial report. The BOD report mainly provides the following three items: (1) emphasized items and reserved opinions in the audit report after the company's financial report has been audited by the firm's accountants; (2) statement of accounting policies, estimated accounting changes, major corrections of accounting errors, and their impacts; and (3) the profits distribution draft or draft for converting capital surplus into shares. Annual reports of listed companies are comprised of the accounting statement, notes for statement, auditing report, accounting data, business data extracts, and other nonaccounting (financial) information.

TABLE 1.8 Sources and Applications of Funds in the Chinese Financial System (RMB in billions)

Sources and Applications of Funds in the Chinese Financial System (RMB in billions)

TABLE 1.9 Statistics of Bonds Issuance (RMB in Billions)

Statistics of Bonds Issuance (RMB in Billions)

TABLE 1.10 Development Skale of Chinese Fund Industry

Development Skale of Chinese Fund Industry

TABLE 1.11 Statistics of Bonds Outstanding in China (by November 29, 2011)

Category

Quantity of Bonds

Quantity Proportion

(%)

Values (RMB in billions)

Value Proportion

(%)

National bonds

169

5.28

6,369.235

30.54

Local government bonds

74

2.31

597.800

2.87

Enterprise bonds

813

25.40

1,698.424

8.14

Financial bonds

499

15.59

7,145.003

34.26

PBC bills

81

2.53

1,812.000

8.69

Short-term financing bonds

554

17.31

788.810

3.78

Asset backed securities

12

0.37

10.947

0.05

Corporate bonds

152

4.75

271.860

1.30

Mid-term notes

809

25.27

1,959.112

9.39

Convertible bonds

19

0.59

117.595

0.56

Bond with warrants

19

0.59

87.115

0.42

Total

3,201

100.00

20,857.901

100.00

Source: Wind Information Co.

Proportion of Total Stock Values against All Financial Assets

FIGURE 1.9 Proportion of Total Stock Values against All Financial Assets

Data from: Wind Information Co.

TABLE 1.12 Statistics of Wealth Management Products of Securities Companies

Statistics of Wealth Management Products of Securities Companies

Citizens' Stock Accounts and Transactions

FIGURE 1.10 Citizens' Stock Accounts and Transactions

Source: Wind Information Co.

In actual practices, market intermediary entities mostly represented by the securities firms could in general provide complete, real, accurate, and regulated disclosures of information for listed companies. With regard to the completeness of information, surveys show that in the analysis of the prospectuses of 69 listed companies in 2008, 59 of them (85.51 percent) mentioned special risks in their reminders of major items. In the standardization of information disclosure, only one of the 69 prospectuses was not drafted completely, according to the specifications of the four effectiveness evaluation quota for information disclosure in securities issuance in China.[1]

Regarding real-case researches, Chinese scholars have made the following three different conclusions in the constant follow-up and study of the effectiveness of the securities market:

1. The Chinese stock market has yet to reach a weak form of efficiency.

2. The Chinese stock market has reached a weak form of efficiency.

3. The Chinese stock market has not yet reached a semi-strong form of efficiency.

The Chinese Stock Market Has Yet to Reach a Weak Form of Efficiency Yu

Qiao, Qin Chijiang, and Lin Tao (1994) discovered that the past price fluctuations in the stock price will impact future changes in stock price, thus shattering the nonefficiency theory in the Chinese stock market. Wu Shinong (1997) believed that the Chinese stock market has not reached a weak form of efficiency in its real sense. Other scholars such as Feng Licheng, Ye Zhong-hang and Cao Yijian, Hu Bo, Jia Quan and Chen Zhangwu, Lu Rong and Xu Longbing, and Wu Zhenxiang and Chen Min all believed that a weak form of efficiency is not established in the Chinese stock market.

The Chinese Stock Market Has Reached a WeakForm of Efficiency Research from a variety of Chinese economists, such as Li Xue, Zhang Bing and Li Xiaoming, Dai Xiaofeng, Wang Shaoping and Yang Jisheng showed that the Chinese stock market features a weak form of efficiency.

The Chinese Stock Market Has Not Yet Reached a Semi-Strong Form of Efficiency Other notable researchers, such as Xu Xiaolei and Huang Liang, Xiao Jun and Xu Xinzhong, Chen Zhiguo and Zhou Wenhai, and Tang Qiming and Huang Suxin all believed that the Chinese stock market is not in a semi-strong form of efficiency.[2]

Regardless of the conclusions, it is clear that the Chinese stock market is seeing steady improvements in terms of information disclosure and market effectiveness. Regulators and intermediary entities, such as securities firms, market system development, listed companies, investor structure, and investment behaviors have played their roles; and there is no denying the active roles played by securities firms in the issuance, underwriting, and constant supervisory process.

  • [1] Hu and Hou (2010).
  • [2] Ji (2011).
 
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