China Capital Market Overview

China Capital Market Profile

I. Overall Macroeconomic Data

1.GDP Data and Its Trend


Chart 1: Total GDP 1993-2012(Unit: CNY 100 million)


Chart 2: GDP per capita 1993-2011 (Unit: CNY)


Chart 3: GDP year-on-year 1993-2012 (%)

Source: Wind

2.Three driving forces of GDP: investment, consumption and export

Chart 4: Contribution rate of three demands to GDP 1993-2012 (%)

Source: Wind

3.CPI Data and Its Trend

Chart 5: CPI monthly charts 1993-2012 (%)

Source: Wind

4.Total Social Financing and Structure

Chart 6: Total social financing 2002-2012 (Unit: CNY 100 million)


Chart 7: Social financing structure in 2012 (%)


5.Foreign Exchange Rate

Chart 8: Exchange Rate of USD/CNY (2003-2012)


II. Overall Picture of China's Capital Market

Preface

The tide of reform and opening up of China's economy since the end of the 1970s, promoted the emergence of China's capital market. After 20 years of practice, as joint efforts of the government and the market, China's capital market is making every progress from zero, expanding the bearing capacity, optimizing the structure and function, and constantly improving the system construction. With the growth of market participants, China's capital market has been developing in legal system, trading rules, regulatory systems, which are approaching international standards. Today, we have established a stock market with the 3rd largest market capitalization globally, a bond market with the fifth largest balance globally, and a futures market with trading volume among the highest in the world. China's capital market has become an important platform to optimize the allocation of resources, to promote the development pattern, and to promote the sustainable development of China's economy.

Development of China's Capital Market

The development of China's capital market has been closely linked to and driven by China's economic reforms, and in return contributes to the economic development. The historical review of the development of China's capital market shows that the country's economic liberalization and reform starting in the late 1970s has given birth to China's capital market. As China's market economy is evolving, there is an increasing demand for more market-oriented resource allocation, leading to the gradual establishment and development of China's capital market.

In retrospect, China's capital market has gone through three phases of development:

Phase I: From early 1978 to 1992; China initiated full-scale economic reform, and China's capital market began to emerge along with the incorporation process of Chinese enterprises.

Phase II: From 1993 to 1998, with the establishment of the China Securities Regulatory Commission (CSRC) as a milestone; China integrated its capital market and supervision regime. The regional pilot programs of supervision regime restructure are expanded nationwide and the national capital market began to emerge and evolve.

Phase III: From 1998 onwards, with the promulgation of the Securities Law as a key milestone; the legal status of China's capital market in the economy has been formalized and strengthened, and a series of major reforms are implemented to facilitate further development.

Stock Market Overview

In the past 10 years, China's stock market has achieved tremendous development. By the end of 2012, listed companies amounted to 2,602, investor accounts exceeded 200 million, and the total market capitalization of shares exceeded CNY 23 trillion.

Chart 9: Total market capitalization and number of listed companies on the Shanghai Stock Exchange and the Shenzhen Stock Exchange, 2003-2012


Chart 10: Total share turnover of the Shanghai Stock Exchange and the Shenzhen Stock Exchange, 2003-2012 (Unit: CNY 100 million)


Bond Market Overview

China's bond market has experienced a tough journey before entering a phase of rapid development since 1981 when the treasury bonds issuance resumed. At present, the bond market includes three segments, the inter-bank market, the exchange market and the over-the-counter market.

The inter-bank market is the main marketplace for bonds, with a market share of about 90% in both balance and trading volume.

The exchange market is another important part; it's a retail market for centralized brokered transactions.

The over-the-counter market is an extension of the inter-bank bond market, and it's also a retail market.

Both the balance and the number of bond have grown substantially for the past ten years: By the end of 2012, the total balance of bond custody reached CNY 23.7 trillion, and the number of bonds reached 3570.

Chart 11: The balance of bond custody and the number of bonds 2003-2012


In the past decade, China's bond market has launched a growing number of innovative products; corporate bonds, convertible bonds, asset-backed securities, the SME private debt, and other products have enhanced the function of China's bond market.

Chart 12: The proportion of each type of bond, as of the end of 2012


Fund Market Overview

The first batch of Chinese asset management companies were established in March, 1998. Since then, China's securities investment funds have gone through three phases of development: the pilot phase, the phase of fund market restructuring and market-oriented development phase. For the past 15 years, China's fund industry has been following the opening up of the capital market, taking proactive steps in development, and achieving considerable progress. In 2012, the number of new funds (254) raised funds (CNY 641.4 billion) both reached record high.

Chart 13: Total scale of fund shares, 2005-2012 Unit: million


Futures and Derivatives Market Overview

Financial innovation is a driving force for the development of China's capital market. The launch of stock index futures and margin trading business introduced short-mechanism to the market, and diversified the derivative market structure. The first and the only stock index futures is the CSI 300 Index Futures which covers around 60% of total market capitalization.

* Stock index futures growth Figure

III. China's Capital Market Structure

Multi-level Capital Market


Multi-level capital market is an important part of the capital market construction — to grow and strengthen the main board, accelerate the development of SME board, steadily push forward the construction of the ChiNext stock market, and actively explore the construction of OTC market. Today, the multi-level capital market in China is taking shape.


Capital Market Participants (Investors, listed companies, agencies)

- Investors


Number of investors has increased year by year with ever-increasing scale of market participation. As of the end of 2012, the number of stock investor's accounts reached 168 million, and fund investment account exceeded 40 million. The capital market has become an important platform of wealth management for the investing public. In recent years, the investor structure of China's capital market has been optimized. Securities investment funds, insurance companies, social security funds, enterprise annuity, QFII and other types of institutional investors have been active players in the market.

Chart 14: Investor structure(Float market capitalization), as of the end of 2012


- Listed Companies

Over the past decade, the number of listed companies has doubled, and the total market capitalization has increased by 4 times. At present, there are more than 2,000 companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. As of the end of 2012, the total market capitalization of Shanghai and Shenzhen is about CNY 23 trillion.

Table 1: Number of listed companies

* As of December 31, 2012

Chart 15: The market value of the three stock exchanges in China by the end of 2012(Unit: CNY 100 million)

Source: Shanghai Stock Exchange, Shenzhen Stock Exchange, HKEx

- Intermediary Agencies

In recent years, the intermediary industries have developed significantly. As of the end of 2012, China's 112 securities companies have CNY 1.72 trillion of total assets, CNY 497.1 billion of net capital, CNY 600.271 billion of customer transactions settlement funds balance, CNY 13.76 trillion of market value of securities in custody, and CNY 1.89 trillion of principal of fiduciary management funds'. In 2012, securities companies had earned CNY 32.93 billion of net profit.

Chart 16: Net capital of securities companies 2007-2012 (Unit: CNY 100 million)


Capital Market Regulators

In October, 1992, the China Securities Regulatory Commission (CSRC) was established. It set up 36 local offices across the nation, and established a centralized regulatory system for the securities and futures market. The commission continues to improve the legal system within the capital market, oversees the market according to law, aims at cracking down on all kinds of illegal activities, constantly enhancing regulatory effectiveness, promoting market transparency and efficiency and preventing systemic risk.


Capital Market Self-regulatory Organization (Exchanges, industry associations, the Investor Protection Fund, etc)

Currently, self-regulatory organizations in China's securities industry include: stock exchanges, the China Securities Depository and Clearing Corporation, the Securities Association of China, and China Securities Investor Protection Fund Corporation.

- Exchanges:The exchanges in China include the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the Shanghai Futures Exchange, the Zhengzhou Commodity Exchange, the Dalian Futures Exchange, and the China Financial Futures Exchange.

- The China Securities Depository and Clearing Corporation:In 2001, the CSRC established the China Securities Depository and Clearing Corporation, setting up a unified, efficient, safe and central securities registration and settlement system.

- The Securities Association of China:The Securities Association of China was established on August 28, 1991. At the end of 2011, the SAC had 240 members, including 109 securities companies, 84 securities investment advisory agencies, 1 financial asset management company, 6 credit rating agencies, and 40 special members (including 36 local securities associations, 2 stock exchanges, 1 securities depository and clearing company and 1 investor protection fund corporation).

- China Securities Investor Protection Fund Corporation:China Securities Investor Protection Fund Corporation was established in 2005. It timely monitors the significant risks that may endanger the interests of investors and the securities market, and explores the establishment of a multi-level investor education and service system.

IV. Comparative Analysis of China's Capital Market and Other

Capital Markets

With the rapid growth of market size, the position of China's capital market is rising rapidly in the global securities market. Now China's capital market has become the world's largest emerging securities market. According to the statistics of the World Federation of Exchanges, as of December 2012, the stock market value of China's capital market ranked 2nd among the world's major markets, and the share turnover ranked 2nd as well. The number of new listings in full year 2012 ranked top in the world, and the total proceeds raised from IPO ranked 2nd globally.

- Market Value

As of December 2012, billion U.S. dollars

-Value of share trading(EOB)

As of December 2012, billion U.S. dollars

- Number of IPO

Full year 2012

- Total proceeds raised from IPO

Full year 2012, in billion U.S. dollars