Key points of the government work report regarding A-shares

On March 5th, the government work report proposed making efficient use of the National Venture Capital Guidance Fund, vigorously developing venture capital and angel investments. Government investment funds should lead in providing patient capital, helping more startups accelerate into leading technology enterprises.

Strengthen financial services across the entire innovation chain and lifecycle, implementing a regular “green channel” for listing financing and mergers and acquisitions for key core technology companies, supporting innovation through technology finance.

Continue to deepen comprehensive reforms in capital market investment and financing, further improve mechanisms for medium- and long-term funds entering the market, enhance investor protection systems, expand exit channels for private equity and venture capital funds, and increase the proportion of direct and equity financing.

Efficient Use of the National Venture Capital Guidance Fund

The government work report emphasizes the importance of effectively utilizing the National Venture Capital Guidance Fund and promoting venture capital and angel investments.

National People’s Congress delegate and Peking University honorary professor Tian Xuan believes that currently, government-guided funds and government investment platforms have become important sources of risk capital. However, the evaluation and assessment mechanisms for these funds still have room for optimization. Currently, assessment periods are mostly annual, with evaluations focused on individual investments, and combined with investment accountability mechanisms, leading some venture capital institutions to adopt risk-averse strategies, preferring to invest in later-stage mature projects. Research shows that the higher the tolerance for failure among lead investors, the more innovative and higher quality the companies will be after going public. Therefore, the market needs to be more inclusive.

Tian Xuan suggests extending assessment periods from one year to three to five years or longer to smooth out early losses and later gains; also, implementing a “bundled evaluation” mechanism—“Invest in ten projects, nine fail, but as long as one success covers all costs and adds value, it should be considered a success and be exempt from liability.”

Regular Implementation of Listing Financing and M&A “Green Channels”

The government work report proposes establishing a regular “green channel” mechanism for listing financing and mergers and acquisitions for tech companies in key core technology fields.

Delegates and committee members recommend implementing a “green channel” for M&A and restructuring of tech companies that have broken through key core technologies, speeding up review processes and improving M&A convenience; more accurately identifying and screening high-quality tech companies, applying the “green channel” policy for issuance and financing of companies that have made breakthroughs in core technologies.

Tian Xuan analyzes that policies now clearly shift the focus of corporate financing support toward technology and quality. Overall, policies are becoming more refined and targeted, which will more effectively support high-quality tech innovation companies to access capital markets and help corporate groups grow into new productive forces.

Deepening Capital Market Investment and Financing Reforms

Delegates believe that early-stage markets focus more on financing functions, but now the focus has shifted toward balancing investment and financing functions, which is an important reflection of the capital market practicing people-centered principles and enhancing investor confidence.

“Reforms should be driven from multiple dimensions, including institutional supply, market ecology, and functional adaptation,” Tian Xuan states. On the investment side, optimize policies for medium- and long-term funds entering the market, relax restrictions on the proportion of equities that social security and insurance institutions can invest, and establish assessment mechanisms aligned with long-term return goals. On the financing side, improve the functions of multi-tiered market segments to attract and accommodate high-quality enterprises.

Yang Chengzhang, chief economist at Shenwan Hongyuan Securities Research Institute and a member of the National Committee of the Chinese People’s Political Consultative Conference, states that attracting medium- and long-term funds into the capital market requires improving the quality of listed companies to encourage “long-term money” to come in, and innovating investment research methods to solidify the foundation for long-term investment.

Further Improving the Mechanism for Medium- and Long-term Funds to Enter the Market

Delegates suggest removing barriers to long-term funds entering the market to enhance their willingness and stability in allocation.

Zhang Qiaoliang, chief partner at Shandong Kangqiao Law Firm and a delegate of the National People’s Congress, recommends further relaxing restrictions on equity investment ratios, concentration limits, and scope for insurance, pension, and wealth management funds, supporting long-term strategic holdings. Also, optimize accounting measurement and risk regulation rules to reduce the impact of short-term stock price fluctuations on long-term funds’ financial indicators, solvency, and regulatory ratings. Standardize the treatment of various long-term institutional investors in corporate governance, private placements, and voting rights, supporting their deep participation in corporate governance.

Improving Investor Protection Systems

The government work report emphasizes improving investor protection systems.

Delegates believe that strengthening investor protection and market ecology are key tasks for ongoing capital market reforms.

Zhang Qiaoliang suggests maintaining a “zero tolerance” approach toward illegal activities such as financial fraud, fraudulent issuance, and insider trading, significantly increasing penalties. Improve collective litigation, pre-emptive compensation, and civil compensation mechanisms to effectively protect the rights of long-term and small investors. Strengthen the cultivation of long-term, value, and rational investment cultures to foster a stable and sustainable capital market environment.

Expanding Exit Channels for Private Equity and Venture Capital Funds

The government work report proposes expanding exit channels for private equity and venture capital funds.

Delegates believe that a well-developed exit mechanism and smooth exit channels are critical factors affecting the venture capital market. They look forward to promoting mergers and acquisitions and other methods to play a more significant role in exits, opening diverse exit channels to better facilitate capital circulation.

Increasing the Proportion of Direct and Equity Financing

The government work report emphasizes increasing the share of direct and equity financing.

Delegates believe that China’s direct financing market, especially the equity financing sector, has huge growth potential. Increasing the proportion of direct and equity financing and deepening market reforms are important strategies.

Tian Xuan recommends deepening reforms of the STAR Market, ChiNext, and Beijing Stock Exchange to create a differentiated and interconnected development pattern, enabling enterprises at different stages and of different types to find suitable equity financing channels.

(Source: China Securities Journal)