SCIO briefing on the reform and development of the capital market

Reuters：

I have two questions. First, what do you think of the chances China will be included in the MSCI global index this year? My second question is this: the State Council said last year that foreign companies would be encouraged to list on China's domestic stock markets. That’s been said many times in the past. When do you think we will see foreign companies actually listed?

Liu Shiyu:

Thank you for raising these questions. I would like to invite Vice Chairman Fang Xinghai to answer you.

Fang Xinghai:

Thanks for your questions. We will always welcome A-share’s inclusion in the MSCI index. We believe that any emerging market stock index, whether it is the MSCI or any other index, will be very incomplete if there is no Chinese involvement. Whether A-shares are included in the MSCI index or not will be firstly decided by MSCI itself, as it is a business decision. We know there are a lot of commercial interests behind it, and we are willing to jointly discuss this matter with MSCI.

As for your question whether China will be included in MSCI this year, we are still unable to judge this so far. Whether it is included or not, the reform process of China's stock markets, as well as our entire capital market, in the direction of marketization, legalization and internationalization will not change. The pace of reform and opening-up will not change because of an A-share inclusion in MSCI, either. In the course of our discussion with MSCI, they have put forward some requests. Some are entirely consistent with the direction of China's capital market reform and opening-up to the outside world, so we will resolutely promote them. Of course, the pace of the promotion will be determined by development of the Chinese market itself.

Let me give you an example. The current suspension system of listed companies is still relatively inadequately standardized. Overseas investors will worry about this: "I bought your shares, but what if they are suspended and cannot be sold when I want to leave?" In my opinion, this problem should be given some attention and should be solved in an appropriate way. Domestic investors have the same concerns, so we will promote corresponding reform and opening-up policies.

Whether foreign companies can be listed in China means whether foreign companies registered overseas can be listed in China and this involves what is known as an international board. We are still working on this matter.

Some of the reporters here may still remember that, when I was working in Shanghai, I studied with relevant departments of the CSRC about promoting establishment of an international board. However, there are still some technical barriers. Take the accounting standards for example. Among the companies registered overseas, some follow American accounting standards, some follow the accounting standards of the European Union (EU), and some follow other international means. Once they arrive in China, these standards need to be adjusted accordingly and cannot be fully applicable. While changing these standards, we need to consider various factors, including the cost of the changes. So, technical work needs to be done in this regard.

In terms of market regulatory rules, such as information disclosure of listed companies, the practice in China is not the same as foreign countries. So, before an international board is launched, relevant rules of the system need to be adjusted accordingly. All in all, we have been working on this matter, but no timetable has been produced so far.