Capital market initiatives to have profound impact in China

A series of new guiding principles for capital market development unveiled by China's State Council this month will have profound impact on the country's long-term economic growth, Moody's Investors Service said in a report on Saturday. The nine principles, popularly known as the New Nine Initiatives (NNIs), envisions a multi-tier capital market by 2020 with a proper structure, functions and regulations, high efficiency and inclusiveness. The NNIs provide comprehensive plans for reform, opening up, development and regulation of China's capital market, and will have a profound impact on long-term economic growth, Moody's managing director and country manager for China Jenny Shi said in the report. The key message from the NNIs lies in the function of the capital market in allocating resources within the real economy, said the report entitled "Development of China's Capital Market and the Implications of the New Nine Initiatives". "The rationale underpinning this key message is that the Chinese economy, after 30 years of rapid growth, is facing increasing challenges and bottlenecks. A more efficient allocation of capital and resources could be instrumental to solving these issues," it said. The State Council has indicated the need to "develop a variety of bond products catering to different investor groups, establish a local government debt-raising mechanism, and diversify bond products suitable for micro, small and medium-sized companies." The implementation of such measures will "bring about multiple opportunities for market players and will help set the stage for further development of China's bond market," Shi said in the report. To manage market risks, the NNIs also emphasize the need for regulation and supervision. "Disciplined development" marks a shift in tone from the previous theme of "vigorous development", she noted. As China's bond market is supervised by various regulators, the NNIs would "reinforce the coordinated regulation and supervision," Shi said. In addition, the NNIs are expected to "enhance credit-based judgment, discipline credit rating services, and improve information disclosures to strengthen investors' risk identification capabilities and reduce reliance on external ratings," she said. Therefore, the authorities focus not only on the development of the bond market as such, but also on achieving healthy growth through appropriate regulation, she added.