One year later, China’s government once
again took the equity financing as the way to solve the excessive enterprise
debt.
During the just-concluded China Development
Forum, Zhou Xiaochuan, the Central Bank Governor, said frankly that China’s
economy is facing the threat of excessive debt level.
“The proportion of the total loan to GDP is
relatively high, especially the proportion of the enterprise sector borrowing
to GDP.” The economy of high leverage is more likely to generate macroeconomic
risks.
Vigorously
Develop the Capital Market Especially Equity Market is the Effective Way to
Solve the Problems of High Debt Level.
According to Zhou Xiaochuan in the G20
Summit held in Shanghai in the end of February, China has a strong will to seek
better development for the equity financing market. Before his statement, Zhou analyzed
the reasons of the high-debt in China, including high saving rates, and late
development of stock market. In the past decades, the rapid economic growth has
also propelled the increase of the debt.
In the China Development Forum, Zhou
Xiaochuan emphasized China’s determination on the reform of finance market in
the 13th Five Year Plan.
“The development of capital market helps
the enterprise gain more capitals for equity investment and thus reduce the
enterprises’ dependence on loan leverage”, “the equity financing of the capital
market enables more national savings flow into the equity financing, which
would decrease the liability-to-GDP ratio and the liability-equity ratio.”
The
Determination of Developing Capital Market has been Listed in the Government
Work Report and the 13th Five Year Plan.
However, before the reports were released
by China’s government, the stock market of China had undergone sharp
fluctuations for more than half a year.
In the recent half a year, apart from the pressure
of economic downturn and the exchange rate fluctuation influence to stock
market, the implementation of the registration system, which was regarded as
the effective way to develop equity financing and reduce enterprise leverage in
China, has always been a huge problem for China to develop capital market. Implementing
the registration system would pose pressure on some high-valued individual
share under the former approval system, and the profit of the investors who has
already invested in the asset would be influenced.
Due to the influence, China’s stock market
turned to be slump and gloomy, furthermore, it was under the pressure of
downturn. Liu Shiyu, the president of China Securities Regulatory Commission
(CSRC), declared his opinion on the registration system, which generally have
been interpreted by institutes as that the CSRC would not put the registration
system into effect.
The policy has been formulated and the RMB
exchange rate has gradually stabilized, and thus the emergency of China’s stock
market are temporarily solved. The speech, with the theme of the First Quarter
GDP Figures “Good Start”, made by Zhang Gaoli, the vice premier of the state
council, has further boosted market confidence.
*This article is an edited and translated version by CCM. The original version comes for Sohu.com.
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