How to Effectively Draw on the Comparative Advantages of the Domestic Capital Market, Identify International Customers, and Raise Service Levels

All internationally well-known investment banks promote the internationalization of their domestic capital markets. By "going out" and "bringing in," these banks enable the capital market of one country to allocate global financial resources. Chinese securities companies need to take hold in the domestic capital market and satisfy the international financing demand of domestic customers. They also must integrate going out with bringing in, understand the trend of the international financial market, grasp the tendency of international macroeconomic policies, draw on the comparative advantages of the domestic capital market, and realize their own quantum leap while promoting the internationalization of the Chinese capital market.

China's construction of the International Finance Center is expected to be completed in Shanghai by 2020. The construction process will provide securities companies with a broad space for development, at least in the two aspects discussed next.

The first aspect involves a series of deeply rooted issues in the construction of the International Finance Center that cannot be addressed with policies alone. These issues include the diversification of products, the deepening of services, and the scaling up of platforms. In order to promote the internationalization of the capital market, securities companies need to constantly explore customer needs, consolidate customer resources, and come up with innovative financial products. They must also attract international enterprises and encourage them to conduct restructuring and stock market listings in China. Attracting international business requires various means, including deepening the integration of in-depth M&A, consultancy, industrial chain integration, and stock market listings. This will expand and solidify the capital market, promoting its internationalization.

Specifically, the reform and opening up over the past 30 years has realized a migration of the secondary industry from overseas to coastal regions of China. A multitude of international enterprises have relocated their manufacturing, R&D, and sales business to coastal cities in the Pearl River Delta and the Yangtze River Delta through foreign direct investment (FDI) or similar arrangements. The rise of the secondary industry in the east brought labor and other resources from the countryside to the cities, from the west to the east. With the approach of the Lewis Turning Point, the Chinese economy is facing yet another transformation in its growth pattern as bottleneck factors such as land, electricity, and minerals resources become increasingly prominent. This means broad prospects for securities companies.

The current transformation includes deepening financial services, optimizing financial products, replacing direct industrial investment migration with financial capital migration, and replacing migration from overseas to China with migration from eastern China to western China. Over the past 30 years, the China's relatively monotonous financial system, unduly dominated by banks, has been suffering from substantiated fixed stock quantity risks and a lack of product variety in the process of resource allocation. Services dominated by simple loan financing, international foreign exchange, and settlement are not able or capable of satisfying the customers' demand for deeper value, let alone innovation in financial products and services. Looking forward, securities companies should enhance the role of entry through financial capital in international capital circulation. Acquisition, mergers, restructuring, and similar means, as well as financial forms such as equity participation, shareholding, and share swap, draw on resources from upstream and downstream of the industrial chain. They give full play to their resource integration capabilities so as to improve capital utilization efficiency.

The second aspect for development is to help the customer grasp both domestic and international platforms and realize optimum international allocation of resources. Since the establishment of the Chinese capital market, it has been increasing in size and innovative products have been emerging. Since the Asia financial crisis, the capital markets of emerging market countries have been getting increasingly rational and mature. Following the sub-prime crisis in the United States and the still unfolding European Union debt crisis, the rationale for a development model of developed capital markets in Western countries has been increasingly called into question and subject to criticism because of its high degree of leverage. Thus, it seems the table has turned to some degree in the development of the capital markets in emerging markets versus that in developed countries. On the other hand, mergers and splits of international enterprises have been emanating from inside developed economies to developing economies. With two major developments in the background as a clear guidance for the development of securities companies, they should appropriately take advantage of multiple domestic and international capital market platforms, combine the two trends of "going overseas" and "bringing in," and fulfill their function of expanding the Chinese capital market and strengthening the Chinese market.

 
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