What Is Involved in Capital Market Development?

The capital market, also known as the long-term capital market, is an important part of the financial market. As a theoretical concept corresponding to the money market, the capital market usually refers to a market that conducts medium- and long-term (more than one year) financing (or asset) borrowing and financing activities. As long-term financial activities involve long-term funds, high risks, and long-term stable income, similar to capital investment, they are called capital markets. ^[1]

Basic Information

Chinese name: capital market
Foreign name: capital market

nickname: Financial markets, long-term capital markets
the term: more than a year

In essence, capital is wealth, usually in the form of money or physical property. There are two main types of people in the capital market: people looking for capital, and people providing capital. The people looking for capital are usually business enterprises and governments; the people who provide capital are people who want to make money by lending or buying assets.

Capital, in the sense of economics, refers to the basic production factors used for production, that is, physical resources such as capital, plant, equipment, and materials. In the fields of finance and accounting, capital is often used to represent financial wealth, especially financial assets used to do business and start businesses. In a broad sense, capital can also be used as a collective term for various socio-economic resources that create material and spiritual wealth.

The capital market is just one of the market patterns. A market consists of sellers and buyers, sometimes in a tangible space, such as a farmer's market or a large shopping mall, and sometimes in an electronic environment. Financial markets are markets where financial products are traded. For example, the currency market establishes a parity rate for currencies of various countries, and market participants trade various currencies to meet needs or make investments. Similarly, the commodity futures market and the capital market are also designed to meet the different financial needs of both parties involved in trading.

Stocks, bonds and funds

The capital suppliers of the capital market are

The contract period for capital transfer in the capital market is generally more than one year, which is the difference between the capital market and the short-term money market and derivative market.

The capital market can be divided into primary and secondary markets:

New capital-absorptive securities are issued in the primary market and demanded by investors.

Securities that have been issued on the secondary market change hands.

If a market meets the requirements of a stock exchange, the market is an organized capital market. Generally speaking, such an organized market through the concentration of time and place can improve market liquidity and reduce transaction costs, thereby increasing the effect of the capital market.

Compared with the money market, the characteristics of the capital market are:

Long financing period

At least 1 year or more, it can be as long as several decades, even without expiration date. For example: medium- and long-term bonds have a maturity of more than 1 year; stocks have no maturity date, belong to no maturity, and belong to permanent securities; closed-end funds have a maturity period of 15-30 years.

2. Relatively poor liquidity

Most of the funds raised in the capital market are used to meet medium and long-term financing needs, so liquidity and liquidity are relatively weak.

3. High risk and high returns

Due to the long financing period and the possibility of major changes, market prices are prone to fluctuations, and investors need to bear greater risks. At the same time, as a reward for risk, its return is also high.

In the capital market, the suppliers of funds are mainly savings banks, insurance companies, trust and investment companies, and various funds and individual investors; while the demanders of funds are mainly enterprises, social groups, and government agencies. Its transaction objects are mainly medium and long-term credit instruments, such as stocks and bonds. The capital market mainly includes medium and long-term credit markets and securities markets.

4. Large amount of funds borrowed

5. Large price changes

For the capital market, comprehensively deepening reforms needs to focus on five major areas:

First, taking the issue of the "three highs" of new shares as an example, in the long run, only investment entities carefully judge the value of an enterprise's investment based on their own interests, and the investment habits of "new speculation," "small speculation," and "bad speculation" have changed. In order to truly break the "three highs" curse of the new stock.

Therefore, we should adhere to the direction of marketization, further promote the reform of the issuance system of new shares, and fully protect the legitimate rights and interests of investors.

It can be seen that deepening the reform of the IPO system is an important task to promote the healthy development of the capital market. To implement the State Council's requirements for accelerating the transformation of government functions, the relationship between the government and the market in the process of issuing new shares should be further clarified and rationalized, the quality of information disclosure of listed companies should be strengthened, market constraints should be strengthened, and all parties involved in the market should be put back into due diligence.

Second, taking the delisting system as an example, in 2012, the CSRC implemented a new delisting system on the main board, the SME board, and the Growth Enterprise Market. It reflects the inherent requirements for the development of the capital market, but for this system, the supervisors must strictly implement it to achieve marketization, legalization, and normalization of delisting.

But one of the important reasons why China's stock market is full of junk stocks is the imperfect delisting system. Therefore, the reform should be further deepened to form a complete delisting system that meets the actual needs of the capital market and investor protection.

It can be seen that the delisting system of listed companies is an important basic system of the capital market, which has a good role in promoting survival of the fittest, improving the quality of listed companies, and optimizing the allocation of market resources.

Third, Xiao Gang, chairman of the China Securities Regulatory Commission, recently published "Protecting Small and Medium Investors Is Protecting the Capital Market." It is pointed out that to truly safeguard the principles of fairness and equality in the market, small and medium investors must be clearly protected. Protecting the legitimate rights and interests of small and medium investors is not only an inherent requirement for the healthy operation of the capital market, but also an effective way to maintain social fairness and justice.

Therefore, in terms of investor protection, further improvements and reforms are also needed. We must comprehensively build a system to protect the legitimate rights and interests of small and medium investors. We must protect the right to know of small and medium investors, improve the voting and voting mechanisms of listed company shareholders, establish a diversified dispute resolution mechanism, and improve the compensation system for small and medium investors.

Fourth, we see that both the amendments to the Securities Law and the formulation of the Futures Law are expected to make new breakthroughs.

Therefore, in the future capital market reform, the legal system construction is also an important level. This includes the revision of basic market laws, such as the Securities Law and the Company Law, and the establishment of basic laws such as the Futures Law. There are improvements and amendments to the system rules.

Finally, legalization also requires further reform of the regulatory system, so that the regulatory authorities can better return to the regulatory standard and crack down severely.

In the national economy, the capital market has the role of converting financial capital into actual capital. Its significance lies in:

1. Accept financial capital (investment) that is not used for consumption

2. Achieve market balance between providers and demanders by establishing market prices

3. Direct capital to the most likely effective investments

4. Through competition between capital demanders, capital can be invested in the most efficient use, which can increase the wealth of the entire national economy.

Share reform

Major institutional defects in the capital market have been corrected, a full circulation mechanism has been formed, and the capital market is in a period of important development opportunities.

(1) The share separation reform is basically completed: As of December 30, 2006, the market value of listed companies that have completed and entered into the share reform process in Shanghai and Shenzhen has reached 98.55%;

(2) Listed companies that have completed the share reform have entered the full circulation sector.

2. New "Company Law" and "Securities Law"

Eliminates many restrictions on capital market development and innovation.

1. The size of the international capital market is rapidly expanding

2. Capital market financing securitization

3. International financial innovation and off-balance sheet business grow rapidly

4. The capital market is increasingly becoming a place for various financial forces to compete, and the stock market is volatile

5. Capital market "failures" are increasingly prominent in developing countries