Asset and Equity Market Reform
Context
The Chinese capital market is underdeveloped and hardly offers any alternatives to medium-sized enterprises which cannot find access to banks. After an initial phase of euphoria, the Chinese capital market experienced a crisis which resulted in a down-turn of the Shanghai and Shenzhen stock markets that lasted for several years. Since 2006, the market capitalization of listed enterprises has been increasing rapidly, but the quality of the available corporate information is still doubtful. Due to a lack of alternatives apart from the still quite restrictive securities market, a speculation bubble is looming dangerously. Only about 1500 enterprises are listed at the stock exchanges in Shanghai and Shenzhen. The standardized capital market is therefore hardly a financing alternative to the dominant banking sector.
With the creation of so-called Property Rights Exchanges (PRE, also known as Asset and Equity Exchanges or Merger Centers), especially in Shanghai, Tianjin, and Beijing, the Chinese capital market entered a new stage. According to a 2003 State Council resolution, restructuring and property rights transfers (merger and acquisitions) of state-owned enterprises can only be conducted through these specially designed exchange markets, of which there are roughly 200 all over China. The Property Right Exchanges fulfill a double function: As a hub for the transformation of state-owned enterprises and as a platform for capitalization and the acquisition of new and additional property rights.
Objective
GTZ offers methodical and technical support in order to increase the transparency of property right transfers, to differentiate the functions of the Tianjin PRE, and to strengthen social and ecological dimensions in the definition of terms of sale of state-owned enterprises. Additionally, the promotion of PREs is expected to contribute to the long-term development of the capital market, which will increasingly constitute a source of financing for small and medium enterprises, as well as an investment opportunity for institutions and, in the long run, even for private households. This significantly contributes to stabilizing the financial sector and to avoid speculative bubbles and intransparency in audits.
Approach
Tianjin municipality has been selected as the site for this project. The Tianjin Property Rights Exchange is China’s second largest Exchange regarding transaction volume. Furthermore, the creation of the Development Zone “Tianjin Binhai New Area” by the State Council adds further innovative potential and acts as a national pilot for financial sector reforms. GTZ supports her partners in the formulation and implementation of a consistent legal framework for PREs on a national level, as well as the creation of an auditing mechanism in order to ensure more transparency in property right transfers. Independent market participants and M&A transaction providers shall be promoted, and refinancing mechanisms for business start-ups and high-tech enterprises shall be created.
In order to help the implementation of these measures, international experts work directly in selected PRE in Tianjin and Hebei. German financial institutions and enterprises are involved on various levels, which helps to position the German private economy in China. There is a cooperation with the Deutsche Börse AG. Furthermore, a cooperation of Tianjin municipality with Frankfurt/Hesse was initiated by the project.