CHINA: An Introduction to Capital Markets: Debt & Equity (PRC Firms)
China: Capital Markets: Debts and Equity (PRC Firms)
In 2024, China’s capital market has further advanced structural reforms dedicated to enhancing market stability, transparency, and high-quality development. In March 2024, the government work report emphasised the importance of boosting the inherent stability of the capital market, setting the core tone for the year's reforms. On 12 April 2024, the State Council issued the Several Opinions on Strengthening Supervision to Prevent Risks and Promote High-quality Development of the Capital Market (“Nine Policies of State Department”), marking the third major policy guidance for the capital market following those in 2004 and 2014. The Nine Policies of State Department, through stringent regulation and market optimisation, emphasise the rigorous supervision and risk prevention in the capital market, establishing a “1+N” governance framework for stock issuance, delisting, information disclosure, and market order, guiding the long-term development of the capital market.
Under the guidance of the Nine Policies of State Department, the China Securities Regulatory Commission (CSRC) swiftly introduced multiple supporting rules to further tighten market access and strengthen the delisting system, establishing a more systematic risk prevention and control system. Simultaneously, the Shanghai, Shenzhen, and Beijing Stock Exchanges (BSE) also optimised key systems such as the Stock Issuance and Listing Review Rules and the Stock Listing Rules, providing institutional safeguards for the transparency, fairness, and sustainability of the capital market. It is foreseeable that the comprehensive implementation of the Nine Policies of State Department will guide the Chinese capital market towards a more regulated and robust development trajectory, promoting the continuous optimisation of market mechanisms and policy systems.
In respect of the regulation of overseas listing, the filing system for overseas listings, initially implemented in early 2023, was further optimised and refined in 2024. Regulatory authorities detailed the positioning and access conditions for the Main Board, GEM, STAR Market, and Beijing Stock Exchange, and intensified the strict control over the quality of A-share listing applications, thereby raising listing thresholds and promoting high-quality development. Furthermore, following the implementation of the new Company Law in 2024, restrictions on the transfer of shares by some joint-stock companies were relaxed, facilitating enterprises with a Red Chip structure. As a result, the number of A-share market applications, approval rates, registrations, and listed companies experienced a temporary decline in 2024. Conversely, the number of companies listing in Hong Kong and the US stock markets gradually increased, with a significant acceleration in the filing process. The recognition of special structures (such as VIE) by domestic regulators also increased, providing domestic enterprises with broader options for expanding into international capital markets.
In terms of mergers, acquisitions and restructuring, on 24 September 2024, the CSRC issued the Opinions on Deepening the Market Reform of Mergers and Acquisitions of Listed Companies, or the M&A Six Policies. The Opinions aim to liberalise cross-industry mergers and acquisitions, allow the acquisition of unprofitable assets, improve regulatory inclusiveness, simplify transaction procedures, enhance intermediary services, and strengthen supervision. The M&A Six Policies have increased market demand for mergers and acquisitions, and improved market efficiency by optimising the review mechanism and simplifying the process. Since the introduction of the M&A Six Policies, the M&A and restructuring market has been active in the second half of 2024, with the purpose of restructuring focusing on the main industry and industry chain integration. Going forward, M&A and restructuring activities are expected to be unleashed and remain positive under the development trend of the capital market's stock economy.
In 2024, China will continue to deepening its strategy of "combining risk prevention and resolution with high-quality development" in government debt management, and consolidate the effectiveness of local government debt control and reform. The Central Financial Work Conference emphasised the need to establish a long-term mechanism to prevent and control local debt risks and optimise the debt structure between the central and local governments, while the Third Plenary Session of the 20th CPC Central Committee further pointed out the need to improve the government debt management system and strengthen the prevention of hidden debt risks. On 8 November 2024, the 12th meeting of the 14th NPC Standing Committee approved an increase of RMB6 trillion in the local government debt limit, which is the largest debt relief measure in recent years, aiming at replacing the stock of implicit debt and alleviating the economic pressure. In addition, from 2024 onwards, for five consecutive years, RMB800 billion will be allocated annually from the newly increased local government special bonds, for a total of RMB4 trillion, providing a cumulative total of RMB10 trillion to China's debt relief resources. Through these policies, China is committed to building a government debt management system that is compatible with high-quality development to build a solid bottom line of financial security.
Meanwhile, the policy promotes the opening of the bond market to the outside world and regulates the issuance of bonds by foreign government-type institutions. On 24 January 2024, the People's Bank of China announced that the Hong Kong Monetary Authority would include "Bond Connect" in the list of eligible collaterals, a move that will help foreign-funded enterprises to issue bonds and raise funds domestically, and will further promote the two-way flow of capital.
In terms of offshore debt issuance by Chinese companies, real estate dollar-denominated debt has picked up, driven by a series of supportive policies since the beginning of the year, with returns recovering to 13%. Favourable policies including guaranteed delivery of buildings, disposal of inventory projects, and the liberalisation of purchase restrictions in several cities drove the continued repair of real estate bonds. Along with the Federal Reserve's expected rate cut on 19 September 2024, the global market environment has improved, and market capital is expected to accelerate the inflow of high-yield bonds, bringing long-term investment opportunities for the Chinese dollar bond market.
In 2024, China's equity market entered a critical transition period from "quantitative increase" to "qualitative increase". With the standardised development of the capital market, the management scale of private equity and venture capital has steadily risen to approximately RMB14.2 trillion, and the concentration of the industry has significantly increased, indicating a trend of market superiority and elimination. The policy documents adopted by the Third Plenary Session of the Twentieth Central Committee of the Communist Party of China further clarified the goal of supporting strategic emerging industries in the capital market, and on 19 June 2024, the General Office of the State Council issued "A Number of Policies and Measures to Promote the High-Quality Development of Venture Capital", and with the support of such policies, the whole-chain management mechanism of equity investment was further improved, and it encourages "investing in the early stage, investing in the small stage, and investing in the hard technology With the support of these policies, the whole chain management mechanism of equity investment has been further improved, encouraging "investing early, investing small and investing in hard science and technology", promoting scientific and technological innovation and the high-quality development of the real economy, and deepening the structural adjustment of the equity market.
Looking ahead to the second half of 2024, China's capital market will continue to see important development opportunities. The implementation of the Nine Policies of State Department and the supporting systems provides better policy support for the rule of law and modernisation of the market, while the Fed's policy shift to lower interest rates provides a buffer for cross-border financing and offshore debt management for Chinese enterprises. The domestic market is expected to rebound in the number of companies listed on the Shanghai and Shenzhen Stock Exchanges and the BSE under the deepening of the registration system reform and the optimisation of the multi-level capital market, with the expectation of a steady rise in market liquidity and activity.