SOME COMMENTS ON DEVELOPING A SECURITIES MARKET1
DECEMBER 21, 1990
Just now, Liu Hongru2 made a very systematic speech, one that I entirely agree with.
First, as we begin issuing securities, we must proceed steadily, even if this means doing it a bit more slowly. If it is disorderly, if a somewhat major problem occurs, our credibility will be ruined.
Second, I hope the central government will allow us to do a pilot program and not cut back. Now that the Securities Exchange has started operating,3 we can’t halt it. If we aren’t allowed to move forward step by step, it would be a setback to reforms, and the impact internationally would not be good either.
Third, if this operation is to succeed, we must try to get the support of the central government. We should consider reporting on our work to Jiang Zemin during the Seventh Plenary Session of the 13th Central Committee. Afterward, we should carry on with all aspects of the work, including writing laws and regulations and conducting a pilot program. We should do our best to make a formal report to the leaders of the State Council next January or February. By then, the Securities Exchange will have been operating for over a month, and we will have some idea of how it is doing. When we report to the central authorities, we must explain clearly that there is no political risk in this, that our socialist nature will not change, and that they can entrust Shanghai with expanding the pilot program to broaden the shareholding system.
Fourth, following are some comments on various work items:
1. Use the issuance of securities to raise capital from abroad. I agree that we should first issue A and B shares. When the same enterprise issues stock, A shares should be issued to residents within the country and B shares issued abroad. For the time being, a “38th Parallel” demarcation line will be drawn between A and B shares. What Shanghai especially needs is to raise capital for infrastructure construction. Given Shanghai’s creditworthiness, this is not impossible. I’m thinking of starting a pilot program and raising money for infrastructure construction by issuing bonds and stocks. The purpose would be to build the high-speed elevated ring road as well as a container terminal.
At the opening ceremony of the Shanghai Stock Exchange, December 19, 1990. Front row: from the left, municipal government adviser Wang Daohan, and Lydia Dunn, chair of the Hong Kong Trade Development Council; to Zhu’s left, Huang Ju, vice mayor and deputy secretary of the Municipal Party Committee; Liu Hongru, vice chair of the State Commission on Systemic Reform; and Li Chuwen, adviser on foreign affairs to the municipal government.
2. Write laws and regulations for joint stock companies. Shanghai already has drafted a law, 50 articles long, on joint stock companies. If the State Commission on Systemic Reform finds it acceptable, then I suggest we ask [Chen] Jinhua4 to have another look at it, and if he feels there’s no problem, then please let us know. Shanghai will then try it out as a local law. At the same time, we should draw up a timetable and list sequentially a batch of enterprises and projects that are preparing to implement a joint stock system and issue bonds or stocks. Jiang Zemin has already said that trials of the shareholding system should be expanded. Enterprises must receive permission to issue stocks and bonds—we hope the central government will give this approval power to local governments.
3. Strengthen management and prevent speculation. To this end, we should take the following measures:
—The Securities Exchange Management Committee must be established quickly. If any collusion between insiders and outsiders is discovered, there should be criminal penalties. This must be handled very strictly.
—The supply of stocks must be increased appropriately to ease the problem of supply not keeping up with demand.
—We could borrow from the foreign method of forming funds by setting up a “mutual fund” pilot program. The buying of stocks could also be organized by sectors—this, too, would require a pilot program.
—I’m asking [Zhuang] Xiaotian to notify the news section that it should halt all coverage of the stock market for a certain period. Work involving the stock market and trials of the shareholding system will all be conducted internally.
1. These are Zhu Rongji’s main remarks in a meeting with leaders from the State Commission on Systemic Reform who had come to Shanghai to study reforms of the financial system and issues concerning the securities market.
2. Liu Hongru was then vice chairperson of the State Commission on Systemic Reform.
3. The Shanghai Securities Exchange officially began operations on December 19, 1990.
4. Chen Jinhua was then chairperson of the State Commission on Systemic Reform.