Ramping up capital market reforms urgently required to maintain financial security
Published: Jul 08, 2020 01:44 AM

Headquarters of the People's Bank of China in Beijing File photo: VCG

Ramping up China's capital market reforms is urgently needed to boost national competitiveness and maintain economic and financial security, Xiao Gang, former head of China's securities regulator said on Tuesday, shining more attention on the nation's sizzling stock market.

The capital market has never been valued as much as it is now, Xiao said, highlighting the significance of the capital market in pushing economic transition to high quality growth.

The former chairman of the China Securities Regulatory Commission (CSRC) made the remarks during an online lecture late Tuesday co-hosted by China Finance 40 Forum, a noted nongovernmental think tank in Beijing, and Sun Yefang Economic Science Foundation, according to Chinese news site

China is deeply integrated into the global economy, and intensified competition between China and the US is essentially about technology and financial rivalry, Xiao said, explaining the latter includes competition in the spheres of currency, financial institutions, and financial markets. 

Describing finance as "the second national defense," he said that the capital market plays a pivotal part in finance and the sophistication of the capital market indicates the level of a country's economic development.

China's capital market has walked several paths over the past three decades which took Western nations over 100 years to get through. Meanwhile, the country's capital market is structurally imbalanced, with inefficient allocation of resources and wild market swings, Xiao noted.

After turning in its best day in five years on Monday with the benchmark Shanghai Composite Index soaring nearly 6 percent, the A-share market continued to roar on Tuesday with a daily trading volume of more than 1.7 trillion yuan ($242.36 billion), a fresh five-year high. It marked the fourth trading day in a row that the daily reading topped 1 trillion yuan.

But unlike the previous day's overwhelming rally which was led by skyrocketing securities, bank and semiconductor shares, the market saw big swings on Tuesday, with many stocks taking a sudden dive in the final minutes of trading. Many of the biggest gainers on Monday turned out to be losers on Tuesday. 

The country's capital market has advanced in short order in terms of its status, but "we remain among second echelon" markets, as measured by various factors, Xiao commented, calling for greater reform and opening up to create a vigorous and resilient capital market.

He urged bolder moves to delist inferior firms, a proactive push for capital market digitization, and an improved legal and regulatory framework to strengthen investor protection.

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