The authoritative interpretation is here! How significant is the CSRC's statement? Are the follow-up reform measures worth looking forward to?

At the Lujiazui Forum on June 19th, Wu Qing, Secretary of the Party Committee and Chairman of the China Securities Regulatory Commission (CSRC), emphasized the key tasks for the high-quality development of the capital market. Among them, vigorously promoting listed companies to enhance investment value is the focus of the next stage of serving the real economy and investors in the capital market. This means that listed companies should not only pay attention to internal governance, maintain stable core business operations, intensify internal strength, embrace new productive forces, but also firmly establish a shareholder return consciousness, highlighting the results of high-quality development in returns to investors.

Securities Times·Securities China reporters learned from sources close to regulatory authorities that the CSRC and stock exchanges will promote sixteen measures to serve technology companies in the capital market, as well as the "Eight Measures for the Science and Technology Innovation Board," to be implemented one by one. They will comprehensively leverage functions such as IPO financing, mergers and acquisitions, bond issuance, private equity investment, etc., to provide more powerful support for the development of new productive forces. At the same time, various measures will encourage listed companies to comprehensively use tools such as shares, cash, convertible bonds, etc., to implement mergers and acquisitions, inject high-quality assets, highlight the investment value of the company, and serve the overall national development.

The relationship between investability and quality

Wu Qing pointed out that listed companies represent a group of excellent Chinese enterprises, are an important micro foundation for high-quality development, and are the source of investment value in the capital market. It is necessary to vigorously promote listed companies to enhance their investment value.

The investability and quality of listed companies are interrelated. The high-quality development of listed companies is the foundation for enhancing investability. Only when the quality of the enterprise improves, does the enterprise have investment value and investability. At the same time, investability is also one of the criteria for evaluating the high-quality development of listed companies. After years of development in the capital market, listed companies have grown into the "cornerstone" and "backbone" of the national economic system, representing a group of excellent Chinese enterprises and an important micro foundation for high-quality economic development.

One set of data best illustrates the issue. The more than 5,100 listed companies in Shanghai and Shenzhen include over 70% of the top 500 domestic enterprises, making them the "cream of the crop" among over 50 million companies nationwide. In 2023, listed companies in Shanghai and Shenzhen achieved a total operating income of 72.6 trillion yuan and a net profit of 5.3 trillion yuan. Among them, 78.4% of listed companies were profitable, with 51.4% of companies seeing year-on-year growth in net profit. The profitability of real enterprises has gradually recovered, with profit growth turning positive in the second half of the year. The cash inflow from operating activities has significantly increased, with a net cash inflow of 6.4 trillion yuan, a year-on-year growth of 9.2%. The ratio of operating cash flow to net profit has increased from 2.0 times to 2.3 times.

Looking at different industries, the performance of the travel service industry has significantly recovered, driving the resurgence of related consumer goods consumption. In 2023, as travel and tourism accelerated recovery, the performance of listed companies in the transportation industry continued to improve, with a 65.6% year-on-year growth in net profit. Hotels, catering, and tourism businesses turned losses into profits, with profits of 1.79 billion yuan and 1.72 billion yuan respectively. Overseas business income reached a new high, with overall outstanding performance by leading enterprises in the "new three items." In 2023, the overseas business income of listed companies reached a new high on a high base, with a year-on-year growth of 5.2%, higher than the 0.6% export growth rate of China's goods trade Listed companies with overseas business revenue account for 12.8% of the total, showing a continuous increase in recent years.

Li Xunlei, Chief Economist of Zhongtai Securities, believes that most of China's listed companies are leading companies in various industries. Strengthening their own businesses is of great significance in driving the upgrading of related industries in China and promoting high-quality development. Some technology-related listed companies represent the leading technology and development trends in their industries, often leading the progress and upgrading of the entire industry. They also have a strong supportive and driving role for other small and medium-sized companies in the industry chain, serving as the leaders and main force in high-quality development.

With the continuous development of the capital market, the ongoing advocacy by regulatory authorities, and the increasing demand from investors to share the benefits of economic growth, listed companies are increasingly aware of the importance of rewarding investors through cash dividends and other means. The dividend amount of listed companies in the past five years has exceeded the amount of refinancing for five consecutive years. The number of companies paying dividends ranks first among major global capital markets, while the total amount of cash dividends and the number of dividend-paying companies rank second globally. The dividend payout ratio, dividend yield, and the proportion of dividend-paying companies are all better than those of US stocks. Paying dividends multiple times a year is becoming a trend, with the five major state-owned banks collectively launching a mid-term dividend plan for 2024 for the first time; the number of companies paying dividends continuously for multiple years has significantly increased, with 2,709 companies and 1,828 companies paying dividends continuously for three years and five years, respectively, representing an increase of 45.7% and 48.5% compared to five years ago.

In the future, it is expected that listed companies will further increase their efforts and breadth in actively rewarding investors. Wu Qing stated that they will further guide listed companies to establish a proactive awareness of rewarding investors, strengthen communication with investors, enhance information transparency and governance norms, and better utilize cash dividends, repurchases, and other methods to give back to investors.

Investors are the foundation of the market, and listed companies are the cornerstone. Both investors and listed companies are the source of vitality for the development of the capital market. Zhang Peng, Deputy Director of the Listed Companies Research Center of the Chinese Academy of Social Sciences, stated that the high-quality development of listed companies is key to enhancing investable value. Only when more high-quality enterprises emerge in the capital market can they provide long-term and stable investment returns to investors while strengthening themselves, enabling investors to truly enjoy the dividends of economic development and capital market reform, thereby promoting the formation of a virtuous ecosystem where investment and financing grow together in the capital market.

Enhancing the "New" Content of Listed Companies

High-quality listed companies are the cornerstone and an important embodiment of serving the new productivity level. Bearing a heavy responsibility, vigorously improving the quality of listed companies, nurturing and expanding emerging industries, and enhancing the "new" content of traditional industries are the key and fundamental aspects of capital market reform.

Wu Qing pointed out that the immediate priority is to conduct in-depth research on the characteristics of relevant enterprises, development trends, and their needs in investment and financing, incentive constraints, corporate governance, etc., and to enrich the tools, products, and services of the capital market in a targeted manner.

At present, more than half of listed companies are focusing on strategic emerging industries. Over the past five years, listed companies have cumulatively invested 6.4 trillion yuan in research and development, with an average annual growth of nearly 20%. Research and development investment now accounts for half of the national enterprise's R&D expenditure, and the number of patents accounts for nearly one-third of the national total. The research and development intensity of the Sci-Tech Innovation Board and the Growth Enterprise Market are as high as 10.9% and 4.9%, respectively. The proportion of companies with R&D intensity greater than 10% is 16.5%, an increase of 1 percentage point year-on-year; 253 companies have R&D investment exceeding 1 billion yuan.

Taking the Sci-Tech Innovation Board as an example, in recent years, through a series of reforms, the Sci-Tech Innovation Board has provided a richer institutional supply in aspects such as IPO listing, information disclosure, trading, and continuous supervision, promoting the formation of industrial agglomeration and unleashing innovation vitality through institutional construction, and initially forming a capital market ecosystem that is conducive to the development of sci-tech enterprises. As of May 31, 2024, there are 572 listed companies on the Sci-Tech Innovation Board, with a total market value of 5.17 trillion yuan and a total IPO financing amount of 909.1 billion yuan. There are 54 listed companies that were not profitable at the time of listing, 8 companies with special equity structures, 7 red-chip companies, and 20 companies listed under the fifth set of listing standards on the Sci-Tech Innovation Board. Currently, the overall operating conditions of the 54 companies that were not profitable at the time of listing are good, with 48 companies achieving revenue of over 100 million yuan after the 2023 financial report update, 19 companies with revenue exceeding 1 billion yuan, and 14 companies achieving profitability.

Furthermore, traditional industries are leveraging the capital market to transform and upgrade, fully embracing new productive forces. Taking BYD as an example, during the reporting period, the company accelerated the deployment of new technologies, achieving a total operating income of 602.315 billion yuan in 2023, a year-on-year increase of 42.04%; and a net profit attributable to shareholders of the listed company of 30.041 billion yuan. The annual R&D expenses were 39.575 billion yuan, a year-on-year increase of 112.15%. In 2023, the number of R&D personnel in the company was 102,844, a year-on-year increase of 47.56%.

The overall quality, structure, and ecosystem of the capital market are undergoing profound changes, attracting a group of high-tech and high-potential quality enterprises. The series of measures released at the Lujiazui Forum undoubtedly inject new development momentum into the Sci-Tech Innovation Board and the capital market. By increasing inclusiveness, attracting high-quality companies representing new productive forces, providing more convenience to high-quality and potential companies, and bringing more high-quality trading targets to investors.

Securities Times·Securities China reporters learned that the China Securities Regulatory Commission and the stock exchanges will systematically implement the new "Nine National Policies" requirements, further strengthen supervision, prevent risks, promote high-quality development, and effectively play the role of financial services in the real economy. They will promote the implementation of sixteen measures to serve technology companies in the capital market and the landing of the "Eight Measures for the Sci-Tech Innovation Board", comprehensively and three-dimensionally play the functions of IPO financing, M&A restructuring, bond issuance, private equity investment, etc., and provide more powerful support for the development of new productive forces.

Support companies to grow stronger through M&A and restructuring

Wu Qing emphasized the support for listed companies to enhance their core competitiveness using various capital market tools, especially to leverage the main channel of capital market M&A and restructuring to help listed companies strengthen industrial horizontal and vertical integration synergy. The China Securities Regulatory Commission will accelerate the improvement of institutional rules, create a better policy environment, and promote the formation of more demonstration cases.

In recent years, the China Securities Regulatory Commission has continuously deepened the market-oriented reform of M&A and restructuring, summarized the pilot experience of the "Two Innovations" sector, fully implemented the restructuring registration system; issued rules for targeted convertible bond restructuring, enriched restructuring payment and financing tools; Extend the validity period of the financial data for stock restructuring, reduce the cost of restructuring; improve the "small and fast" mechanism for restructuring to enhance the efficiency of restructuring review; increase the inclusiveness of restructuring valuation to support the reasonable determination of transaction pricing by all parties in market-based negotiations; use high-quality large-cap companies as the "main force" to support mergers and acquisitions among listed companies. Overall, the aforementioned reform measures are conducive to listed companies carrying out market-oriented mergers and acquisitions more effectively and improving transaction efficiency.

Industry mergers and acquisitions have become mainstream. Data shows that 80% of major asset restructuring transactions are horizontal or vertical mergers in the industrial chain, with more and more listed companies implementing restructuring around their main businesses, making industrial integration more prominent. Most restructurings have achieved the expected results, with a number of typical cases emerging that have become stronger through restructuring, such as Yangtze Power consolidating its position as a "hydroelectric aircraft carrier" through restructuring, and AVIC Electronics absorbing and merging AVIC Electromechanical to create an airborne system listing platform, effectively serving major national strategies such as high-level technological self-reliance and the construction of a modern industrial system.

Li Xunlei pointed out that supporting high-quality mergers and acquisitions among listed companies is an important measure for the capital market to support the development of the real economy, promote technological innovation, assist in state-owned enterprise reform, and facilitate industrial transformation and upgrading. Listed companies should effectively utilize merger and acquisition tools, seize opportunities to inject high-quality assets, eliminate inefficient capacity, implement mergers and integrations, enhance investment value through their own high-quality development, and increase investor confidence.

The market-oriented reform of mergers and acquisitions requires the escort of intermediary institutions. Wu Qing pointed out that intermediary institutions should be diligent and responsible, accelerate the improvement of professional capabilities, not only act as "gatekeepers" but also better play the role of "matchmakers" in transactions, support listed companies in strengthening their core businesses and supply chains through better quality and more professional services in promoting industrial innovation.

He Zhijiang, Chairman of Ping An Securities, believes that enhancing professional service capabilities is a must for intermediary institutions. They should not only act as "gatekeepers" and integrate regulatory and supervisory work throughout the entire lifecycle of enterprises from early development to steady growth, planning for listing, and rapid development, but also play the role of "matchmakers", actively use merger and acquisition tools to help listed companies become stronger and more competitive, promote industry integration and extension, and help listed companies enhance their investment value.

Securities Times·Securities China reporters learned from sources close to regulatory authorities that the China Securities Regulatory Commission (CSRC) will continue to implement and encourage listed companies to comprehensively use shares, cash, targeted convertible bonds, and other tools to carry out mergers and acquisitions, inject high-quality assets. Firstly, serve the overall national development. Guided by national strategic needs, with high-quality large-cap companies and key industries supported by the state as the "main battlefield", resources are directed towards key areas of technological innovation and national livelihood, serving major national strategies such as high-level technological self-reliance and the construction of a modern industrial system, promoting the development of new productive forces. Secondly, highlight the investment value of companies. Encourage listed companies to implement industrial mergers and integrations with the goal of enhancing sustainable operational capabilities and achieving transformation and upgrading, combining national and market conditions to enhance the adaptability and inclusiveness of regulatory policies, and support industry leaders and key chain enterprises to become stronger and more competitive. Thirdly, coordinate the promotion of high-quality development with strong regulation and risk prevention, continue to strengthen the supervision of the entire restructuring chain, resolutely crack down on illegal activities such as speculation on "shell" resources through restructuring, financial fraud, insider trading, enhance investor protection, and maintain the order of the capital market Author: Cheng Dan, Source: Securities China, Original Title: "The authoritative interpretation is here! How significant is the CSRC's heavy statement? The follow-up reform measures are worth looking forward to"