China issues guidelines for capital markets reform

The guidelines, issued on Friday, express an intent to foster the market for private equity and venture capital funds and qualified investors. A clear definition of "qualified investors" should be in place in order to better regulate fundraising activities.

Meanwhile, private placements through the issue of shares, bonds or fund products would not be subject to administrative approvals. PE and VC investors are encouraged to support small- to medium sized enterprises and new emerging industries, such as financial technology.

The blueprint, which follows the nine principles issued by the State Council in 2004, also gives further guidance on opening up markets to foreign investors, financial risk controls and improving competitiveness among brokerages.

On the equities side, the government wants to develop a multi-layered stock market, seeking to replace the approval-based IPO system with a registration-based approach commonly seen in developed markets. It relies on high levels of information disclosure and allows companies and investors to decide the valuation and timing of new share offerings.

With this in mind, China will also improve listed companies' quality and transparency, promoting market-oriented asset acquisitions and restructuring.

"Both the 2004 and 2014 versions stressed direct financing and building multi-layer equities markets as a reflection of work that the government has not yet accomplished and will continue to work on," according to advisory firm Z-Ben.

"Key differences show the evolution of development goals. The 2004 version flagged G-share reform as a major issue; whereas the 2014 version has taken a key focus on private integration across all facets of the formal economy via the opening of equities and bond markets, as well as honing sustainable private funding mechanisms."

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• Topics
• Greater China
• Regulation
• China
• regulation
• IPO
• Fundraising