China is injecting new energy and vitality into its capital market with various reforms. Richard Li reports on recent key measures

China’s capital markets have witnessed a number of major reform measures since the beginning of this year. The objectives of these measures are to promote further opening of domestic markets, strengthen connections between domestic and foreign markets, and to attract high-quality, innovative enterprises to list on the A-share markets. These new reforms are crucial steps towards greater openness and transparency.

Zhang Liguo, the chief partner at Grandway Law Offices in Beijing, says recent capital market trends reflect three macro approaches in China’s economic development. First, the macro layout of the capital markets must serve state strategy and also the real economy. For example, the launch of the pilot depository receipt (CDR) project represents an effort to connect capital markets with innovation and entrepreneurship.

Second, capital markets will be opened further and gradually move towards globalization. “The opening of the capital markets is a bi-directional opening, encouraging both ‘please come in’ and ‘going out’,” says Zhang Liguo. “In the past few years, China has carried out reforms in terms of ‘please come in’ with qualified foreign institutional investors [QFII], renminbi-qualified foreign institutional investors [RQFII], etc., and such ‘bi-directional mechanisms’ as Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, achieving relatively good results. Now the focus of reform has fallen on ‘going out’ through such systems as qualified domestic institutional investors [QDII], qualified domestic limited partnerships [QDLP], etc.”

Finally, it is essential to ensure the stability and financial safety of the capital markets. “The opening of the capital markets – regardless of whether it is QFII/RQFII or QDII/QDLP, or bond connect, or Shanghai-London Stock Connect – must proceed in an orderly fashion, guard against cross-border capital flow risks, ensure the safety of foreign exchange reserves and ensure financial safety and stability,” says Zhang Liguo.


Yang Yingfei, counsel at Fenxun Partners, which operates a joint office with Baker McKenzie, says the much anticipated trial rules for the issuance and trading of CDRs, which the China Securities Regulatory Commission (CSRC) released recently, was well received, as evidenced by strong interest from China’s tech giants. “Yet, while the rules provided much needed clarity on the qualifications criteria that issuers need to meet in order to issue CDRs – including market capitalization and valuation, disclosure obligations and share structure – the rules governing trading of CDRs and investor requirements remain unclear,” says Yang.

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