Summary of Key Points
The A-share market has now become a "giant" with a total market value exceeding 130 trillion yuan (equivalent to China's annual GDP for 2025), over 5,500 listed companies, and average daily trading volume of 2.6 trillion yuan. However, the issue of being "large but not strong" is prominent: the combined total assets of 150 securities firms amount to only slightly more than those of Goldman Sachs (12.4 trillion yuan), and the industry's average return on equity (ROE) is less than half that of leading international investment banks. The article discusses how to transform the A-share market from being large to strong, starting with the successes of recent reforms in areas such as regulations, scale, innovation, funding, returns, and openness. It then highlights current structural shortcomings, including the delisting mechanism, the depth of openness, support for the real economy, and the strength of securities firms. Finally, it proposes three key directions for development over the next five years: institutional openness, inclusive functionality, and compliance risk management, emphasizing that building world-class investment banks is a critical step.
Breakdown and Interpretation
1. The "Growth Report" of the A-share Market: What Progress Have We Made?
- Improving Regulations: The new Securities Law and the "National Nine Measures" have established a framework. New regulations have been implemented in financing (comprehensive registration system, reform of the Science and Technology Innovation Board/ChiNext), investment (guiding long-term capital into the market), trading (halving stamp duty, lowering margin requirements), and for listed companies (strengthened delisting processes and市值 management), providing clearer rules for the market.
- Expanding Scale: The total market value has grown from tens of trillion yuan a decade ago to 130 trillion yuan, with the number of listed companies increasing from several thousand to over 5,500. Daily trading volume has more than doubled compared to 2024, indicating a more active market.
- Increasing Focus on Technology: In the past two years, 90% of newly listed companies are technology firms. The Science and Technology Innovation Board has seen 61 unprofitable companies go public, and the Beijing Stock Exchange has listed nearly 200 specialized and innovative small enterprises. The electronics industry now accounts for more than a quarter of the market value, showing that the A-share market is no longer dominated by finance and real estate but is increasingly supporting high-tech sectors.
- Greater Investor Returns: Cash dividends in 2025 are expected to exceed 2.5 trillion yuan, and total dividends and share repurchases over the past five years have exceeded 10 trillion yuan (twice the amount of new financing). The number of companies delisted due to violations has increased from 87 to 179, indicating a healthier market ecosystem.
- Greater Openness: Foreign capital holds a market value of 3.4 trillion yuan in A-shares, and the MSCI index continues to include A-share stocks. Thirteen foreign securities firms have entered the market, with an additional 5.3 billion US dollars in QDII quotas allocated—international capital is increasingly recognizing the A-share market.
2. The "Shortcomings" of the A-share Market: Why Is It "Large but Not Strong?"
- Inadequate Delisting Mechanism: The delisting rate in 2025 is only 0.6% (compared to 9% in the US), and most delistings are mandatory, with few voluntary exits (such as mergers or privatizations), leading to a lingering presence of "zombie companies" in the market.
- Limited Openness: Foreign capital mainly enters through channels like the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. There is insufficient price synchronization between onshore and offshore markets, and there are hidden barriers to cross-border investment and data flow. China also has less influence in the formulation of international financial rules.
- Insufficient Support for the Real Economy: The proportion of direct financing (46.9%) is much lower than in the US (78%), indicating that companies still rely heavily on bank loans. There are fewer technology firms among the top ten largest listed companies by market value compared to the US, suggesting that the capital market's ability to value technological innovation needs improvement.
- Weak Securities Firms: The total assets of 150 securities firms are less than those of Goldman Sachs, and their ROE is less than half that of international investment banks. Overseas revenue accounts for only 15-25% (compared to over 40% in international firms), leading to intense competition and a lack of capable firms to efficiently allocate resources and compete globally.
3. Directions for Change Over the Next Five Years: How to Move from Large to Strong?
- Institutional Openness: The focus is on aligning domestic rules with international standards (such as accounting and information disclosure) and even participating in the development of new regulations (e.g., green finance classifications). This will make RMB assets more attractive to global investors.
- Inclusive Functionality: Support for technology firms, especially those that are unprofitable in their early stages but require significant funding. Improve listing procedures to allow unprofitable companies to go public and provide risk management tools (such as futures and options) to help them navigate market fluctuations.
- Compliance Risk Management: Use advanced technologies like AI and big data for intelligent regulation, predict risks (e.g., geopolitical shocks, Fed interest rate hikes), and strengthen penalties for listed companies to protect investor interests. A stable market requires controllable risks.
4. The Critical Role of Building World-Class Investment Banks
Investment banks are the "core intermediaries" in the capital market, providing services for company listings, mergers and acquisitions, and bond issuance. Currently, Chinese securities firms are not strong enough, leading to:
- Domestic companies having to seek financing from international firms like Goldman Sachs and Morgan Stanley.
- International capital preferring foreign investment banks.
- Inability to provide fair valuations for technology firms.
World-class investment banks are not created by policy alone; they need a supportive environment with open regulations, inclusive functionality, and robust risk management. Only then can Chinese firms compete on a global stage with international counterparts.
Conclusion
The transformation of the A-share market from being large to strong depends on improvements in regulations, market ecosystem, and cultural aspects. By establishing clearer rules, a more inclusive market, and stronger risk management, along with the development of world-class investment banks, the capital market can truly become a powerful tool for serving the real economy and participating in international competition.