From December 6 to December 8, Guo Shuqing, Chairman of the CSRC led a survey team to Jiangsu and Shanghai. In his tight schedule, Guo Shuqing’s team made on-site inspections of the corporate governance in two listed companies and held three panel discussions with listed companies, securities firms, and investor representatives in Jiangsu and Shanghai, taking in various comments and suggestions regarding the reform, development and supervision of the securities and futures markets.

At the discussion on corporate governance held in Nanjing Suning Appliance on the morning of December 7, as soon as Guo entered the meeting place, he took the initiative to shake hands with attending investors and exchange sincere greetings with them. He started the meeting by stating frankly that excellent corporate governance and mature capital markets are codependent with each other. As an emerging market, China has merely over 20 years of experience in modern corporate system and capital market development. Consequently, there are still a lot of problems to be solved in the area of governance of listed companies. Guo encouraged the investors to be open and direct in voicing their opinions, demands and even criticism towards the CSRC. The entire meeting was carried out in a relaxed and dynamic manner. Zhang Jindong, Chairman of the Board of Suning Appliance gave an introduction of the experience of and approach adopted by Suning Appliance in corporate governance. Guo listened attentively while taking notes and asked from time to time such detailed questions as shareholding structure, the rule of procedure of the board of directors and the board of supervisors, their composition and the frequency for their meetings. During the meeting, Zhang also put forth the idea of categorized supervision and review over listed companies, suggesting that more favorable treatment in refinancing should be given to companies which attach great importance to shareholder returns, have no insider trading and exhibit excellent performance in information disclosure. Meanwhile, Zhang suggested that the CSRC should provide more convenience and support to emerging sectors and new profit-making models.

Also present at the meeting were Zhan Yueping, vice general manager of Minsheng Huitong Asset Management Co., Ltd. and Deng Xiaofeng, the director of the department of stock investment at Bosera who also gave their respective accounts of participating in the corporate governance of Suning Appliance. Guo stressed that the institutional investors should actively participate in the governance of listed companies, promote the decision-making mechanism of listed companies by frequently participating in shareholders’ meeting and nominating directors and urge listed companies to raise their awareness of investor returns, in order to effectively take advantage of the shareholding system and boost the core competitiveness of enterprises. Yu Jianye and another individual investor, who are both shareholders of Suning Appliance attended the meeting and spoke about their acquisition of the company information, their participation in corporate governance and the investor relations management of listed companies. Having listened to their statement, Guo asked a series of questions, including: Do they attend shareholders’ meeting regularly? Do they have unobstructed access to company’s information? Is it convenient for them to check the minutes of shareholders’ meetings? Should external supervisors be included in the board of supervisors? 

After the meeting, Guo Shuqing's team checked the minutes from the meetings held since the restructuring and listing of Suning Appliance, paying special attention to whether the “three meetings (shareholders’ meeting, the meetings of board of directors and the meetings of board of supervisors)” have proper agendas, whether the minutes of the meetings are complete and whether the topic setting and the rule of procedures are in line with the Company Law. While checking the relevant materials, the relevant official of the CSRC team also gave some suggestions. For instance, the discussion of the board of directors could cover more subjects if the time of the meeting could be announced further in advance, providing more time for all participants to make more adequate preparation; the role of independent directors should be further promoted, in particular, allowing them to be more involved with specialized committees and specialized fields and voice more opinions; The board of supervisors should effectively exercise its statutory responsibilities in an independent and innovative manner; the investor relation management should be strengthened, in order to provide adequate safeguard for investors to have easy and comprehensive access to the company information; etc. Before parting, Guo reiterated that after the restructuring and public listing, private and family enterprises have already become social enterprises and public companies. Therefore, these companies must possess a strong sense of corporate citizenship, prevent controlling shareholders and actual controllers from making any interference at will beyond their statutory rights and protect the rights and interests of small and medium investors. Only by doing all the above, can these companies gain the trust of the market. 

Afterwards, the survey team held another panel discussion on corporate governance at Jiangsu Phoenix Publishing and Media Corporation. According to Chen Haiyan, Phoenix Publishing and Media's board chairman, cultural publishing enterprises have relatively unique governance structure. Apart from meeting the common requirement of corporate governance, there are various other aspects to take into account, including such issues as the relations between supervisors and talents, peer competition, business independence and social responsibilities. Phoenix Publishing and Media has made rather positive explorations as follows: the administrative department of the group to which the listed company is affiliated does not directly issue instructive documents to the listed company and the decision-making right lies with the board of directors of the listed company; the general manager is fully responsible for the specific business operation and management of the listed company; for the group and the listed company, member of the party committee and the board of directors, the board of supervisors and the management holds positions in each other. During the meeting, Li Yangang, vice general manager of the asset management department of GF Securities Co., Ltd stated that the institutional investors can play a crucial role in promoting the corporate governance of listed companies by: 1. urging listed companies to improve the quality of information disclosure and help companies cultivate the awareness of standardized information disclosure; 2. building the bridge of communication between investors and companies in order to boost the investors’ ability to obtain information in a well-rounded and accurate manner; and 3. effectively encouraging companies to take initiative in enhancing their governance, facilitate companies to raise the returns to shareholders. Guo listened attentively to the speeches and took notes.

Investor representatives Mao Huipeng and Hao Yaohong pointed out bluntly that, although the CSRC established numerous regulations, in practice, it is still very difficult for individual investors to participate in corporate governance. They asked Guo if there could be an agency mechanism, to which Guo replied with “great minds think alike”. The CSRC is currently researching the possibility of establishing one or more institutions to purchase the shares of listed companies, participate in shareholders’ meetings, initiate legal actions and take part in governance on behalf of investors. Zhang Huadong, chairman of the board at Nanjing Securities Co., Ltd. and Wu Yongmin, chairman of the board at Soochow Securities Co., Ltd. both mentioned the need to effectively crack down on various fraud, especially vicious events of pure fabrication and reinforce the supervision and accountability of controlling shareholders, the directors, supervisors and senior management. Regarding this issue, Guo clearly stated that the Securities Law expressly provides for the legal liabilities of such material violations as public listing of companies after packaging, fraudulent offering, false disclosure and insider trading and the CSRC will further reinforce its law enforcement actions in the future, ensuring the effective implementation of relevant laws and regulations and safeguarding the fairness and justice of the market. After the discussion, Guo conducted a thorough check of the minutes and documents of the shareholders’ meetings, the board of directors and the board of supervisors at Phoenix Publishing and Media, stressing that the specified requirements of laws must be effectively implemented.

Upon the conclusion of the discussions on the morning of December 7, Guo and his team immediately went to Shanghai. In the afternoon of the same day, they held another meeting with the representatives of individual and institutional investors in Shanghai. Guo opened the discussion by saying with sincerity, “I know that you are all very concerned with the reform and development of the capital market. We are here to learn from you, to ask for your opinions on how to manage the development, reform and supervision of the market. We are not limited by any topics today so that everyone can voice their points of views.” His opening speech was met with positive feedbacks from all the participants. Wang Junfeng, general manager of CITIC Prudential Fund Management Co., Ltd presented in a row the following four suggestions: 1. speed up the launch of innovative products designed for blue-chip stocks and promote the liquidity and valuation level of blue-chip stock market; 2. explore the matching offering of put warrants and encouraging pre-IPO companies to offer convertible bonds; 3. strengthen supervision over listed companies, boost the integrity level of companies and impose tough punishments on fraud behaviors, laying a solid cornerstone for the development of the capital market; and 4. adopt measures, including the freezing of funds raised, heavy fines, punishment of sponsors and sponsoring institutions, to impose harsh punishment on false listing and listing after packaging.

According to Zhan Long, general manager of Bank of Communications Schroder Fund Management Co., Ltd, at present, foreign investors in general have high expectations for A-share market, the QFIIs newly approved this year have been quick in opening a position and are now actively applying for new investment quota, while most Chinese investors lack faith in the market. Under this circumstance, it is imperative to further introduce the sophisticated and rational foreign investors, foster the opening of foreign-invested asset management companies and actively develop diversified products to facilitate investment portfolio. Chen Geng, the CEO of Guotai Junan Securities Co., Ltd. pointed out the two major points of pressure in the market: 1. over 800 companies wait to go IPO; and 2. the valuation of blue-chip stocks are too low. Regarding the former, we can learn from the Taiwan experience, guiding pre-IPO enterprises to first list at the “new third board” or regional equity trading markets while adopting matching mechanism, allowing enduring companies with high performance to transfer to the Main Board or the GEB; as for the latter, it is crucial to promote institutional investors, boosting market confidence. Xu Haoming, the CEO of Everbright Securities Co., Ltd. suggested further developing fixed income business so as to enhance the leverage level of securities companies and speed up the development of derivatives market.  

According to an individual investor with the surname of Sun, currently some directors, supervisors and senior management personnel of listed companies, who lack the awareness of public welfare and social responsibility, are reducing the shares held in an intensive manner regardless of the market environment, hurting the market confidence; in addition, some fund management companies are charging procedural fees regardless of the performance of the fund. These phenomena need to be restrained. Sun Shanzhong, another individual investor sticking to the concept of value investment, stated that excessive fund-raising severely harms the entrepreneurship; many entrepreneurs who had built their business from nothing tend to lose motivation to further develop after acquiring huge amount of funds excessively raised. It is imperative to adopt effective measures to return the excessively raised funds back to the market. Sun also disagreed with the notion that blue-chip stocks are not profitable. He said, “Long term value investment will definitely be profitable. I have been investing for years with excellent return. My plan is to establish my own investment company like Warren Buffett when the situation allows.

After listening attentively to various opinions, Guo thanked the participants for presenting all the useful comments and suggestions for the development of capital markets. These issues that raise concern in the market concern different aspects including the systematical arrangements, financial technological innovation and law enforcement and supervision. To sum up, these are all issues in development; therefore they need to be resolved with reforms and development. The 18th National People’s Congress put forth the requirement for speeding up the development of a multi-layered capital market and further enhancing the fundamental function of the market in resource allocation. This has provided clear guidance as well as stated high demand for our future efforts. We will be devoted to further research and the timely implementation of mature measures. Guo also pointed out that the CSRC has full confidence in China’s capital market based on various established grounds and causes, which is neither a groundless slogan nor a preaching tactic. We are witnessing improvement in both macroscopic fields such economic, political, social and legal environment and the structure, foundation, technical aspect and regulatory environment of the market, with various problems being remedied and resolved. We are convinced that all these positive elements will lead to long-term improvement.

During the survey tour, Han Zheng, the mayor of Shanghai and the secretary of the CPC Shanghai Municipal Committee, Luo Zhijun, the secretary of the CPC Jiangsu Provincial Committee and Li Xueyong, the governor of Jiangsu Province met with the team and exchanged opinions on issues relating to the capital market.

Source: www.csrc.gov.cn