Yesterday, the Fifth Session of the 12th National People's Congress opened in Beijing. Premier Li Keqiang delivered the Government Work Report, in which the content directly related to the capital market was only 43 Chinese characters: "deepen the reform of the multi-tiered capital market, improve the foundational systems of the main board market, actively develop the ChiNext and the New Third Board, and regulate the development of regional equity markets."

The author believes that this highly generalized statement not only guides the reform and development of the capital market but also leaves room for practical work. Meanwhile, many aspects of the key tasks for 2017 listed in the Government Work Report require the support of the capital market. This needs further in-depth understanding.

First, the multi-tiered capital market has entered a "deepening" stage.

The multi-tiered capital market has been mentioned in the Government Work Reports for the past four years, but with slightly different wording: in 2014, it was "accelerate the development of the multi-tiered capital market"; in 2015, "strengthen the construction of the multi-tiered capital market system"; in 2016, "promote the healthy development of the multi-tiered capital market"; and this year, the word "deepen" is used. The author believes this indicates that the overall framework of the multi-tiered capital market has been established, and the focus of work will be on improving mechanisms, optimizing structure, and sustainable development.

Among them, the main board market holds a leading position in the multi-tiered market system with a strong demonstration effect. It should improve systems in aspects such as issuance and listing, information disclosure, corporate governance, mergers and acquisitions, market innovation, and external supervision, and sing the theme of "risk prevention" and "sustainable development."

The ChiNext and the New Third Board mainly serve innovative small and medium-sized enterprises. They should further improve the tiering and transfer mechanisms, lower the profit thresholds for listed and quoted companies, and better meet the financing and development needs of small and medium-sized innovative enterprises. Adhere to information disclosure as the center and strengthen corporate governance requirements. Truly achieve survival of the fittest and let market mechanisms play their role.

　　Strengthen the supervision of regional equity markets and increase regulatory resources. The securities and futures regulatory departments of the State Council and local governments must assume primary responsibility and solidly carry out this innovative work. Enhance transparency and improve market constraints. Prevent rushing into action and leaving a mess.

Second, the capital market must enhance its ability to serve the overall economic development.

Premier Li Keqiang pointed out in the report: "The leverage ratio of non-financial enterprises in China is relatively high, which is related to the high savings rate and a financing structure dominated by credit. Under the premise of controlling the overall leverage ratio, reducing the leverage ratio of enterprises should be the top priority. Promote enterprises to revitalize existing assets, advance asset securitization, support market-oriented and law-based debt-to-equity swaps, increase equity financing, strengthen financial leverage constraints on enterprises, especially state-owned enterprises, and gradually bring corporate debt down to a reasonable level."

This passage is more than twice as long as the discussion on the capital market itself, which shows how heavy the tasks of reducing the leverage ratio of non-financial enterprises and advancing asset securitization are! To this end, it is necessary to improve the multi-tiered capital market system, allow capital of different ownership types and risk preferences to flow in a standardized market, and expand the scale of direct financing. It should be emphasized here that market expansion itself is not scary; imperfect pricing mechanisms and distorted prices are what is scary.

From the perspective of the key tasks of the current supply-side structural reform, whether it is transforming and upgrading traditional industries, cultivating and strengthening strategic emerging industries, cutting overcapacity and backward production capacity, forming sensitive and effective pricing mechanisms, reducing institutional costs of enterprise operations, or achieving market-oriented resource integration on a larger scale, all require the development and growth of the capital market.

Therefore, on the basis of following market rules and firmly establishing risk prevention fences, the development of the capital market should be appropriately accelerated.

Third, the capital market must coordinate with the entire financial system to prevent risks.

When deploying financial system reform, Premier Li Keqiang pointed out that overall systemic risks are currently controllable, but high vigilance is needed against accumulated risks in non-performing assets, bond defaults, shadow banking, and internet finance. Steadily advance the reform of the financial regulatory system, orderly resolve and dispose of prominent risk points, rectify and standardize financial order, and build a solid "firewall" against financial risks.

Since the second half of last year, high-level officials have repeatedly warned of financial risks. The Central Economic Work Conference held in December last year proposed "placing the prevention and control of financial risks in a more important position." The author believes that the capital market, as an important part of the financial system, may become a source of risk and may also be infected by other financial risk sources. Facts have also proven that risks in areas such as non-performing assets, bond defaults, shadow banking, and internet finance have manifested in the stock and bond markets and have cross-infected.

In recent years, phenomena such as excessive proxy voting by insurance funds in listed companies and major shareholders manipulating stock prices through mergers and acquisitions have fully reflected the urgency and necessity of "seamless" financial supervision. It is necessary to strengthen the assessment and prevention of intra-industry risks, cross-industry risks, superimposed risks, and imported risks to ensure stable and orderly financial order.

Premier Li Keqiang also required promoting financial institutions to focus on their main business, shift their focus downward, enhance their ability to serve the real economy, and prevent capital from flowing away from the real economy. This is a clear requirement for all financial institutions and an important guideline for preventing and resolving financial risks. The capital market must coordinate with the entire financial system to jointly prevent and resolve financial risks. The investment behavior and intermediary service behavior of securities companies, fund companies, futures companies, etc., should closely adhere to the fundamentals of investment targets, and not create and hype concepts detached from fundamentals or engage in speculation.

Regulatory agencies should establish an indicator system for different types of institutions to measure "capital flowing away from the real economy," strengthen daily monitoring, and promptly identify and control risks.

Fourth, the capital market must balance safeguarding sovereignty and opening up.

When summarizing the work in 2016, Premier Li Keqiang pointed out that financial risk prevention and control were strengthened, the RMB exchange rate formation mechanism was further improved, the basic stability at a reasonable and balanced level was maintained, and national economic and financial security was safeguarded. When deploying the work for 2017, he proposed the requirement to "adhere to the direction of market-oriented exchange rate reform and maintain the stable status of the RMB in the global monetary system."

The author believes that formulations such as "safeguarding national economic and financial security" and "maintaining the stable status of the RMB in the global monetary system" reflect the unity of safeguarding sovereign interests and adhering to opening up. The capital market should serve the overall situation of national opening up, but in advancing, it must also safeguard sovereign interests.

In the long run, whether the RMB exchange rate can maintain overall stability is determined not only by China's economic strength and foreign trade capacity but also by the maturity of the capital market. To expand the opening of the capital market, correct strategies and methods must be adopted, and we must adhere to being self-centered. The Qualified Foreign Institutional Investor system and the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have done this; next, opening up financing for foreign-invested enterprises in China's stock and bond markets should also adhere to such strategies and methods.