The stagnant stock market is responsible for the rapidly decreasing direct financing ratio, said Cheng Siwei, vice president of the National People’s Congress Standing Committee. He pointed out that the current task was to resume the function and attraction of the stock market, and restore investor’s confidence.

“The stock market should be a platform for direct investment and direct financing. However, China’s stock market still has a long way to go. We need to encourage direct financing, but all of them depend on market allocation,” he said.

Also, Chen encouraged stake decentralization in a speech at the 2003 China Mayors Summit Forum, saying that it is important to enterprise governance.

He said that they found many problems when the NPC Standing Committee inspected the implementation of the Securities Law in 2001, like false information releases, internal transactions, and market manipulation. All of these problems were connected with dominant shareholding.

Stake decentralization can be achieved in many ways in addition to listing or selling state shares. For example, different enterprises can buy one another’s shares. “If there are three main shareholders in a company, they will supervise one another.”

Chen pointed out that there would be many types of state-run enterprises like state-owned enterprises, state holding enterprises, and state-invested enterprises.

“The precondition of stake decentralization is to establish a sound equity transferring mechanism,” he said. Equity transfer is concerned with asset pricing, which needs assistance from financial intermediaries like securities companies, financial companies and accounting institutes.

(China.org.cn by Tang Fuchun, September 7, 2003)