Global Stock Market

China’s Plan to Trim Debt Makes Stock-Market Reforms More Urgent

Photographer: Qilai Shen/Bloomberg

China’s policy makers, spurred to act by ballooning debt, are trying to get the country’s $10.7 trillion stock market to play a larger role in funding the economy.

Top officials meeting in Beijing last week said they would push ahead with more equity-market reforms in 2021, accelerating a campaign aimed at encouraging more share sales from local firms. Initiatives like new hedging tools or widening the daily price limit on stocks could boost liquidity and help attract foreign capital, at a time when China’s mutual fund investors are being blamed for rising stock volatility. Capital-market reforms will promote a more “mature investment culture,” local media reported Friday, citing delegates of the National People’s Congress.

Authorities have signaled the cost of borrowing will rise as the economy gains traction, putting the spotlight on the stock market as an alternative source of funding. While multiple interest-rate cuts and cash injections from the central bank helped keep Chinese companies afloat last year, the quick buildup of debt now poses a significant risk to the financial system. Officials have warned about asset bubbles, with the banking and insurance regulator saying this month that speculation in the property market is “very dangerous.”

Measures under consideration include changing the system for initial public offerings on main exchanges in Shanghai and Shenzhen, a move that could reduce the backlog of hundreds of companies waiting to list. And as authorities loosen control over the stock market, they’re getting tougher on firms that want to access it: the securities regulator may set a higher bar for companies looking to sell shares on its experimental Star venue.

China's stock market has more than doubled since 2018

Below is an overview of some of most significant changes currently in the works for China’s stock market.

Swing away

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