Chinese Mainland Stock Markets Must Shift Focus to Quality of Listed Firms From Quantity
DATE:  Nov 24 2022
/ SOURCE:  Yicai
Chinese Mainland Stock Markets Must Shift Focus to Quality of Listed Firms From Quantity Chinese Mainland Stock Markets Must Shift Focus to Quality of Listed Firms From Quantity

(Yicai Global) Nov. 24 -- The number of Chinese mainland-listed companies exceeded 5,000 as of two days ago. It took 10 years for the figure to increase from 1 to 1,000 and only two years and two months to rise from 4,000 to 5,000.

Their market capitalization totaled CNY87.9 trillion (USD12.3 trillion) as of Nov. 22, equivalent to 74 percent of the country’s gross domestic product last year, and their operating revenues amounted to CNY70.7 trillion, equivalent to 62 percent of GDP, while net profit totaled CNY5.7 trillion, equal to 28 percent of the GDP.

The rapid growth of the Chinese mainland’s stock markets can be attributed to different stages of China’s economic development. GDP per capita rose from USD886.60 in 2016 to about USD13,000 this year. The nation has also unveiled the Star Market on the Shanghai Stock Exchange as well as the Beijing Stock Exchange.

The degree of market opening-up, including the commodity and capital markets, in a country is partly to do with the degree of globalization and the international position and circulation of the country’s currency. When Chinese mainland-listed firms exceed 5,000, we need to think about what a reasonable number would be.

Take the US stock market and US companies as a reference. Last year, there were 6,111 firms listed in the US and 4,640 US firms listed on global stock markets, compared with 6,110 globally listed Chinese firms. The market cap, operating revenue, and net profit of listed US companies was on average 3.2 times, 1.86 times, and 2.38 times that of listed Chinese firms, respectively. Also, 415 businesses delisted from the US stock market last year, compared with just 19 in the Chinese market.

The majority of US-listed firms are from the biotechnology, banking, software, pharmaceutical and healthcare equipment sector, and companies in the health, finance and information technology industries are the most profitable. In China, the main areas are industrial machinery, electrical components and equipment, pharmaceuticals, electronic components and basic chemicals, which are mainly traditional industries. 

When the number of listed firms exceeds 5,000, China’s capital market must shift its focus from quantity to quality. The country should encourage state-owned enterprises to go public and grow into leaders in important industries via benign competition with other companies worldwide.

China’s capital market should encourage and support the development of firms from strategic emerging industries by encouraging them to go public and should push listed firms to seek transition and upgrading.

(The author is the chief expert at the Institute of Global Industry with Tsinghua University, a professor at Peking University, and head of Xinrui Business School.)

Editor: Tom Litting

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Keywords:   Chinese Mainland Stock Markets,listed firms