Three top financial regulators on inflation, green finance, monetary policy, financial risk, STAR Market, etc.
Latest from Yi Gang, Guo Shuqing, and Yi Huiman on June 10
The 13th Lujiazui Forum, co-hosted by Shanghai Municipal People's Government, the People's Bank of China, the China Banking and Insurance Regulatory Commission, and the China Securities Regulatory Commission, opened in Shanghai on June 10, 2021.
Below are the main content of the speeches at the forum by Yi Gang, Governor of the People’s Bank of China; Guo Shuqing, Communist Party Secretary of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission; and Yi Huiman, Chairman of China Securities Regulatory Commission. All emphasis are your Pekingnologist’s.
What has been omitted here is only the courtesy parts of their speech - nothing concrete was omitted.
Yi Gang mainly talked about China’s monetary policy, green finance, and inclusive financing.
Guo Shuqing mainly talked about the effect of easy money policies from developed countries, inflation (which is a quite hot topic in recent days), China’s ongoing taming of financial risks. He also sent stern warnings of Ponzi schemes and speculation on real estate prices.
Yi Huiman gave a detailed elaboration of the two-year-old STAR Market (known in Mandarin as 科创板 Science and Technology Innovation Board in Shanghai Stock Exchange) and explained why the IPO there appears to many as have been slowed.
Below is the major content of the speech of Yi Gang, Governor of the People’s Bank of China
Today, I would like to take this opportunity to communicate with you on topics such as monetary policy, green finance, and the development of inclusive financing. At present, our country has entered a new stage of development, and we have observed that the population structure, resource structure, industrial structure, and regional structure are undergoing profound adjustments and changes, which have an impact on potential economic growth and price level.
In the process of shifting from high-speed growth to high-quality development, our country's aggregate economic base is getting bigger and bigger, and the potential economic growth rate will slow down to some extent due to the decline of labor productivity growth rate and the change of population structure. The change of population structure will also have an impact on both supply and demand of the economy. Under the trend of population aging, the economic growth model driven by capital and labor input is unsustainable. Sustainable growth in the future mainly depends on improving the total factor productivity and releasing the economic growth potential through a series of reform measures. Since last year, despite the severe impact of COVID-19, if we look at the average of last year and this year, we predict that China's GDP growth rate will be close to the potential growth rate.
Monetary policy should pay attention to the influence of structural changes on prices. The aging of the population will lead to the increase of residents' precautionary savings and the decline of consumption tendency, thus inhibiting inflation. And the green transformation will make the price trend go upward. What is the green transformation? The green transformation is to turn people's production and lifestyle into a low-carbon model. Because carbon-emission energy is a big part (of the economy), so simply speaking, green transformation is to encourage people to use more clean energy and less fossil energy. However, under the existing technological conditions, generally speaking, fossil energy is cheap and stable, while clean energy is expensive and unstable, which is called the "green premium"- the cost in carbon emission of fossil energy is basically not reflected (in its price). The task of green transformation is to limit carbon emissions and make the cost of carbon emissions explicit. That is to say, emitters are required to pay for incremental carbon emissions, and at the same time, the existing carbon emission rights can be traded through pricing, so that emission reducers can gain benefits and emitters can pay appropriate costs, thus encouraging the transformation of production and consumption to low-carbon mode. This process will objectively lead to the cost increase related to carbon emissions, and then bring the pressure of structural price increase. According to the above analysis, there are pressures that may lead price to decline and also price to increase. The pressure in different directions will hedge each other to a certain extent, which is conducive to overall price stability.
Recently, the prices of global crude oil and other commodities have risen rapidly, and the short-term rise of global inflation has become a reality. However, there are huge differences in (people’s minds) whether inflation can last for a long time. China adhered to the normal monetary policy during COVID-19 last year, and the total domestic demand was relatively stable, which was conducive to maintaining the overall price stability. Since the beginning of this year, China's PPI growth has been relatively high, which is related to the low base formed by negative PPI last year, so we can observe PPI changes from the overall perspective of last year, this year, and next year - three consecutive years. Judging from various factors, this year's CPI trend in China is low in the early days and then high in the later days, and the average annual CPI increase is expected to be below 2%. Of course, there are uncertainties in the external COVID-19 situation, economic recovery, macro situation, and macro policies, and the pressure of inflation and deflation from all sides should not be taken lightly.
Considering that China's economy is running in a reasonable range, and the price trend is controllable as a whole near the potential output level, monetary policy should adapt to the New Development Stage, adhere to the principle of stability, adhere to the implementation of normal monetary policy, especially pay attention to the cross-cycle balance between supply and demand, and manage well the strength and rhythm of the policy. At present, although the domestic interest rate level is higher than that of major developed economies, it is still relatively low in developing countries and emerging economies, and it is generally at an appropriate level, which is conducive to the stable and healthy development of various markets. We shall continue to deepen the reform of interest rate marketization and release the potential of the Loan Prime Rate reform. We shall continue to improve the managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies, promote the balance between internal and external, and keep the RMB exchange rate basically stable at a reasonable and balanced level. On the premise of keeping the money supply appropriate, monetary and credit policies will mainly emphasize two structural aspects.
First, solidly promote the development of green finance. It is an important strategic decision made by the Communist Party of China Central Committee to achieve the goal of carbon peaking and carbon neutralization. The People's Bank of China actively uses structural monetary policy and other tools to help the green transformation of the economy and achieve the goals of carbon peaking and carbon neutrality. First, improve the system of standards on green finance. The People's Bank of China, China Banking and Insurance Regulatory Commission, and other departments formulated the standards of green bonds and green loans earlier. At the same time, we will work closely with relevant departments of the European Union to jointly promote the convergence of green classification standards. The second is to establish a climate and environmental information disclosure system. Promote domestic major commercial banks to disclose information related to climate change, and research and promote it to market entities such as publicly traded companies. In the future, a unified information disclosure standard will be established. The third is to encourage the financial sector to increase financial support for green industries. (We will) Research on supporting tools for carbon emission reduction. Fourth, guide financial institutions to guard against climate change risks. The People's Bank of China has conducted stress tests on climate change risks of financial institutions, and continuously monitored and evaluated the green transformation of financial institutions. It is necessary to give full consideration to the actual situation of input cost, expected service life, and depreciation of existing infrastructure, steadily design transition parameters, and dynamic risk weights, and strive to achieve a smooth transition in the transition period of green transformation.
Second, insist on developing inclusive financing. In recent years, we have continuously increased financial support for small and micro enterprises and individual business households. We will ensure employment and people's livelihood, increase income and promote consumption, thus stabilizing the basic economic situation. We always adhere to the principles of marketization and rule of law, improve the mechanism of incentive compatibility, and strengthen the credit risk management and control ability of commercial banks. At present, our inclusive small-and-micro loans have supported more than 36 million small and micro enterprises and individual business households. We will continue to use structural monetary policy tools, give full play to the joint efforts of departmental policies, and guide banks to increase the support for first-time loans and credit-based loans on the premise of commercial sustainability. (We shall) encourage banks and enterprises to strengthen loan risk prevention in accordance with the principle of commercial sustainability. (We will) facilitate commercial banks’ improvement of financial service capacity for serving small and medium-sized enterprises (SMEs), strengthen the use of financial technology, promoting the loan-as-you-go model, and promote a long-term mechanism that enables commercial banks dare, willing, capable, and good at loaning to to SMEs.
We shall promote Shanghai as an international financial center, taking Xi Jinping Economic Thought on Socialism with Chinese Characteristics for a New Era as the guide, create new advantages in international cooperation and competition, and improve the efficiency and level of the domestic circulation with international circulation. Recently, the Communist Party of China Central Commitee once again put forward clear opinions and requirements on supporting the high-level reform and opening up in Pudong New Area, and supported Shanghai to further improve its financial market system, system of products, institutional system, and infrastructure system, and enhance its capacity on global resource allocation . I once pointed out at the Lujiazui Forum that Shanghai as an international financial center must be an international financial center based on RMB assets. With the increasing global demand for RMB assets, there will be a series of demands for risk management, legal environment, and talent supply on RMB assets. In this process, Shanghai will become an asset allocation center, risk management center, financial technology center, high-quality business environment demonstration center, and financial talent center on RMB, and will become a more competitive international financial center. To this, we are full of confidence.
In the next step, the People's Bank of China will, as always, support the buidling of Shanghai into an international financial center. (We shall) support Shanghai to strengthen its function in global resource allocation, build a green financial hub to promote “dual circulation,” promote the integrated and high-quality development of the Yangtze River Delta, and help Shanghai become an important hub and bridge to connect the international market and the domestic market in the New Development Paradigm.
Below is the main content of the speech by Guo Shuqing, Communist Party Secretary of the People’s Bank of China and Chairman of the China Banking and Insurance Regulatory Commission.
Since 2020, in response to the once-in-a-century pandemic, developed countries have launched extraordinary economic stimulus plans. In the meantime of the rapid expansion in spending, monetary policy has reached an unprecedented degree of easing. The balance sheet of the Federal Reserve has nearly doubled, the European Central Bank has expanded by more than half, and the Bank of Japan has expanded by more than a quarter. These extraordinary measures have indeed played a role in stabilizing the market and people's minds in the short term. However, the accompanying negative effects will have to be shared by all countries in the world. First of all, financial assets and real estate prices in developed countries have generally increased by a large margin. In particular, the stock market quickly reached a record-high level. People who often climb mountains know that the steeper the mountain, the harder it is to get up and even harder it is to get down. Second, as if it was agreed in advance, inflation arrived as scheduled. Moreover, it is a bit higher than that predicted by U.S. and European colleagues. As for the duration, it seems that it will last not as short as that predicted by many experts. Third, when the fiscal expenditure has been supported by the central bank printing money to a great extent, it is just like an airplane entering the rotation vortex in the air, and it is difficult for it to fly out smoothly by itself. Before 2008, the balance sheet of the Federal Reserve was only over $800 billion, but now it is nearly $8 trillion, and the ratio of federal debt to GDP in the United States has exceeded the highest record set during World War II. Fourth, there are still many uncertainties in the current COVID-19 situation in the world, and the risk of partial blockage or breakage of global industrial chains and supply chains is still relatively high. This should have been the time when all countries - we are in the same boat - help each other and overcome difficulties together. However, a few/certain developed countries/country kept creating troubles and continued to pursue the unilateralism of so-called “its own country First”. In fact, they first harmed the interests of their own people. For example, keeping high tariffs on products from China objectively promotes inflation to rise faster. Fifth, facing the spillover effect of easy money in the United States and Europe, emerging market economies and developing countries have to take painful countermeasures. The central banks of Russia, Turkey and Brazil have started to raise interest rates, and some developed economies have also started to release signals of tightening. From the perspective of global macroeconomics, it is difficult to draw conclusions about the advantages and disadvantages of these policies.
When China strengthened its macro-policy response, it did not engage in “flooding” (massive stimulus). Some countries criticized China for its inadequate response and its insufficient contribution to the global economic recovery. This is obviously due to prejudice or misunderstanding. As a matter of fact, our policy strength was not too small. From the perspective of monetary and financial policies, in 2020, bank loans increased by 19.6 trillion yuan, with a growth rate of 12.8%, and the scale of social financing increased by 35 trillion yuan, with a growth rate of 13.3%, which is rare in the world. By reducing loan interest and service charges, the financial system ceded a profit of 1.5 trillion yuan to the real economy last year. From the perspective of fiscal and tax policies, in 2020, China increased tax reduction and fee reduction for enterprises and residents by more than 2.5 trillion yuan. The public budget is 3.7% in deficit ratio, plus new anti-pandemic national debt, special local government debt, additional investment by policy banks, etc., and the ratio of these figures to nominal GDP has exceeded 10%. More importantly, our response policies have achieved the best results. China's positive economic growth in 2020 has promoted the economic recovery of neighboring countries and major trading partners, and prevented the world economy from falling into greater contraction. China supplied about half of the world's final products for quite a period of time and generally has not raised the export FOB price, laying a solid foundation for global pandemic prevention and control and economic recovery. If a large number of currencies issued by the most developed countries form the driving force for global inflation, then the products by hundreds of millions of Chinese workers are the anchor for stabilizing global inflation.
Why is our fiscal and financial support policy so strong but the balance sheet of the central bank can remain unchanged? First of all, the overall macro decision-making of the CPC Central Committee is balanced, scientific and reasonable, and the arrangement and command of the State Council and the financial stability and development committee under the State Council are practical, accurate and effective. Secondly, because the financial system has steadfastly rectified the phenomenon where money left the real economy to the virtual one (finance), and resolutely reduced the internal leverage ratio, the business of inter-bank wealth management, inter-bank investment, entrusted loans, and trust channel businesses continued to decrease, and the high-risk shadow banking continued to shrink. Third, because the balance sheet of China's central bank has special advantages, the steady policy that lasted for many years has kept the deposit reserve ratio at a high level, and at the same time, the market-oriented reform of interest rate and exchange rate has unloaded a heavy burden. Therefore, unlike the balance sheet expansion upon assets purchases by the central banks in developed countries, China has promoted commercial banks to issue more loans to the real economy by reducing the deposit reserve ratio and appropriately increasing targeted refinancing, while at the same time guiding more savings in the society into direct investment and securities investment, significantly expanding the production and supply capacity of urgently needed products in China and the world, and promoting the green transformation process of the economy.
China has entered a New Development Stage, and we will thoroughly implement the New Development Philosophy, actively promote the structural reform on the supply side, and continuously enhance and upgrade the pattern of dual circulation in which domestic and overseas circulation reinforce each other. From the financial point of view, it is necessary to further open to the outside world, improve the corporate governance structure, speed up market-oriented mergers and acquisitions, regulate the Internet platform and promote fair competition. We shall step up the digital transformation of traditional financial services so that financial institutions can serve the real economy more accurately and prevent financial risks more accurately. We shall develop inclusive financing, strengthen financial services for small and micro enterprises and vulnerable groups, and effectively promote common prosperity. We shall develop green finance, and provide strong financial support for realizing the goal of carbon peaking and carbon neutralization on schedule. We shall develop technology and finance and support independent innovation and self-reliance in various ways.
At present, the most prominent task is to further increase the proportion of direct financing. In the scale of new total social financing last year, the proportion of bond and stock financing has reached about 37%, and there is still more room, especially the bond market has great potential. One of the main shortcomings hindering its healthy growth is that the bond market is not disciplined enough. There is an urgent need for governments, enterprises, intermediaries and investors at all levels to realize that debt evasion is not only immoral, but also illegal and even criminal. The fundamental measure is to speed up the reform of the registration-based (contrary to administrative approval-based) system with information disclosure at the core, truly strengthen the management of investors' suitability, and ensure that issuers, intermediaries, and investors strictly fulfill their respective obligations and assume their respective responsibilities according to law.
After three years of tough battles to resolve major financial risks, many financial risks we faced in the past showed a trend of decline. However, risk prevention is the eternal theme of financial work. We must be prepared for danger in times of peace, and we must not relax for a moment. At present, we need to focus on the following aspects.
First, actively respond to the rebound of non-performing assets. The extension of loan principal and interest for small, medium and micro enterprises affected by COVID-19 is expected to result in a certain proportion of bad loans. In some places, the tendency of growing into a bubble and going “financialization” of real estate is serious, a considerable number of government financing platforms are under great pressure to pay debts, and the debt default ratio of some large and medium-sized enterprises is rising, which aggravates the credit risk of banking institutions. Some small and medium-sized financial institutions are facing a more severe situation. It is necessary to urge banking institutions to do a solid asset classification, increase the provision and make provision, and ensure that non-performing assets can be disposed of more quickly.
Second, strictly guard against the resurgence of shadow banking. Different from foreign countries, China's high-risk shadow banking has typical characteristics of "within-system" and "credit-like". After rectification, the scale of shadow banking in China has dropped by 20 trillion yuan compared with the historical peak, but the stock is still large in scale, and it is easy to rebound and regain its momentum if even a slight carelessness creeps in. In order to prevent financial institutions from adding leverage through cross-cutting financial products again, all kinds of new tricks of "credit-like" (products) must be contained in the initial stage. We shall conscientiously implement the new asset management regulations to ensure the smooth completion of the rectification task of existing asset management products.
Third, resolutely rectify all kinds of illegal public offering of securities. There are still a large number of products called "private placement" which are actually "public offering" in the financial market. In the past, many illegal fund-raising cases were actually illegal public offerings of securities. The number of people participating in the investment of these products exceeded the limit of 200, and the targeted investors were in fact for unspecified investors, causing serious damage to the market, society, and the people. Once "de facto public offering in the name of (false) private placement " is found, it shall be severely punished according to law, and the legal responsibility of the issuer and other related parties shall be investigated and punished for fraudulent issuance, financial fraud, or false disclosure accordingly.
Fourth, effectively guard against the investment risks of financial derivatives. In the case of financial derivatives where risks have exploded, a large number of individual investors participated in the investment. From the perspective of mature financial markets, institutional investors are mainly involved in financial derivatives investment, which is not suitable for individual investors. The reason is that due to uncontrollable or even unpredictable factors, the price of financial derivatives fluctuates greatly, which requires investors' professional level and risk tolerance. The participation of ordinary individual investors is tantamount to gambling, and the result of loss is already predetermined. Those who speculate on foreign exchange, gold, and other commodity futures can hardly get rich, just as those who bet that house prices will never fall will eventually pay a heavy price.
Fifth, always be alert to all kinds of "Ponzi schemes". At present, all kinds of scams, which lure victims by high-interest returns and under the banner of so-called financial technology and internet finance, are emerging one after another, and their essence is passing-on-the-risk illegal fund-raising activities. Everyone must keep in mind that no pie drops from the sky, and the propaganda of "high-return guarantees" is financial fraud. We shall consciously be vigilant, enhance risk prevention awareness and the capabilities of identifying risks and stay away from all kinds of illegal financial activities.
I hope that the guests attending this (Lujiazui) forum and colleagues in the (financial) industry will not only express their insights on big issues but also take pains to publicize these basic common senses in finance.
Below is the main content of the speech by Yi Huiman, Chairman of the China Securities Regulatory Commission.
It's a pleasure to come to Lujiazui Forum again. The theme of this forum is "China's financial reform and opening up amid great changes in the world", which is of great practical significance. At present, the world economic structure is undergoing profound changes, and the development of COVID-19 is still full of uncertainties. Major developed economies have implemented large-scale fiscal stimulus and loose monetary policies, which have stabilized market confidence to a certain extent and reversed the economic downturn. However, they have also brought about problems such as excessive liquidity, sharp fluctuations in asset prices, and the rising fragility of international financial markets. Trade protectionism is on the rise, and the global industrial chain and supply chain is impacted. In this context, countries pay more attention to the key role of scientific and technological innovation in economic transformation, and actively cultivate new energy for long-term healthy economic development. In order to cope with the impact of COVID-19 and achieve high-quality economic development, the Chinese government has deepened the supply-side structural reform, accelerated the implementation of the innovation-driven development strategy, and strived to promote the high-level circulation of science and technology, capital, and the real economy, which put forward new and higher requirements for effectively exerting the functions of the capital market. Below, I will focus on some issues related to the reform of Shanghai Stock Exchange STAR Market.
Two years ago, the STAR Market officially opened at the Lujiazui Forum. In the past two years, under the strong leadership of the CPC Central Committee and the State Council and with the strong support of relevant parties, we have focused on implementing the innovation-driven development strategy, focusing on improving the fundamental system of the capital market, adhering to the working principle of "building the system, non-intervention, zero tolerance", adhering to the reform concept of marketization, legalization, and internationalization, adhering to the three principles of respecting the fundamental connotation of the registration-based IPO system, learning from international best practices, and embodying Chinese characteristics and development stages, and promoting the smooth establishment and implementation of the STAR Market and piloting the registration-based IPO system. From the current situation, the overall effect of the reform is good, in line with expectations.
First, the demonstration effect of supporting "hard technology" has become clear. By the end of May, there were 282 listed companies in the STAR Market with a total market valuation of nearly 4.1 trillion yuan. IPOs in the STAR Market raised 361.5 billion yuan, taking over 40% of China’s total A-share IPO financing in the same period. In 2020, the median ratio of R&D investment to operating income in the STAR Market is 9%, and R&D personnel accounts for an average of 28.6% of the total number of employees, with an average of 104 invention patents, which are higher than other markets or boards in China’s stock exchanges. The STAR Market has gathered a number of science and technology enterprises in the fields of integrated circuits, biomedicine, and high-end equipment manufacturing, and the color in "hard technology" has gradually become clear. In 2020, the net profit of listed companies in the STAR Market increased by 59% year on year, which was significantly higher than the overall market.
Second, the role of being the "experimental field" for reform has been brought into full play. The registration-based IPO system piloted in the STAR Market’s is a major exploration of incremental reform, insisting on information disclosure at the core, and has carried out a series of institutional innovations in issues, listing, trading, delisting, refinancing, mergers and acquisitions, etc., establishing practices that can be replicated and promoted, and providing a useful reference for the reform of stock markets such as the Growth Enterprise Market (on the Shenzhen Stock Exchange). For example, diversified, inclusive listing standards have been set. 19 unprofitable enterprises have been listed in the STAR Market, and special equity structure enterprises and red-chip enterprises have been listed in the STAR Market, further stimulating market vitality. For another example, the STAR Market has greatly relaxed the implementation conditions of stock incentive compensations, and 116 companies have launched stock incentive compensation plans, accounting for about 41% of the total number of companies in the STAR Market, effectively mobilizing the enthusiasm and creativity of scientific and technological talents.
Third, the STAR Market is generally stable. In the past two years, the main indicators have been running smoothly, and the market liquidity has been basically in line with the positioning of the STAR Market, investor suitability, and the arrangement of the trading system. In terms of turnover rate, in the first five months of this year, the average daily turnover rate of the STAR Market was 2.56%, which was higher than that of the main board and Growth Enterprise Market in the same period. From the perspective of pricing efficiency, the STAR Market has relaxed the price limit, optimized the margin financing and securities lending arrangements, and the competition is more sufficient, which is conducive to accelerating the formation of equilibrium prices. At the same time, the phenomenon of "speculating on new stocks" has been significantly reduced. After the listing in the STAR Market, the companies also withstood the test of the market in terms of corporate governance and continuous information disclosure.
With the continuous advancement of reform, the concept of a registration-based IPO system with information disclosure at the core takes increasingly firm roots in the minds of the people, the sense of due diligence of the market participants has grown significantly, the mechanism of the prosperity of good and the elimnation of bad companies has been further improved, the supply of rule of law in the market has made breakthroughs, the channels for investor protection have become more smooth, the expectation of the market has been positively stablized, and the overall market ecology has shown positive changes. We are also soberly aware that the establishment of the STAR Market and the pilot of the registration-based IPO system are groundbreaking and breakthrough, and various institutional arrangements need to be continuously developed and improved in practice. Some new situations and new problems in the reform are inevitable for the STAR Market, which will have to go through them as it matures. We shall keep the determination of reforms, stick to its positioning of (listing companies in) "hard technology", further improve relevant rules, and continuously improve the quality and efficiency of the STAR Market’s service to the real economy.
All along, all sectors of society have placed high hopes on the high-quality development of the capital market, given care and support, and put forward many constructive suggestions. I would like to take this opportunity to exchange views with you on some recent market concerns.
On the scientific and reasonable normalization of IPOs. Recently, there is a view that IPOs have been tightened. We believe that IPOs have neither tightened nor relaxed; Of course, in terms of the frequency of new listings, it is necessary to comprehensively consider the market’s acceptance, liquidity environment, and the coordinated development of the primary and secondary markets, and actively create a new share issuance ecology that meets market expectations. According to the data, the number of IPOs has maintained rapid growth in the past three years. In the first five months of this year, there were 196 IPO companies, with total financing of more than 150 billion yuan, up 111% and 37% respectively. It should be said that IPOs continue to be normal, and their growth rate is not slow. Why do some market players feel there is a slowing down of IPOs? There may be several factors: First, the implementation of the requirements of the new securities law has put more pressure on the responsibilities of intermediaries; The second is we strengthened the supervision of shareholders' information disclosure and clarified relevant requirements such as the verification of the shareholders. Third, according to the principle that substance is more important than form, the evaluation system of the science and technology attributes (of companies attempting to list) has been improved, and the comprehensive judgment on the requirements of "hard technology" has been strengthened. This consideration is mainly to create conditions for the whole market to steadily push forward the reform of the registration-based IPO system, and also to properly manage the relationship between the reform of the registration-based IPO system and the improvement of the quality of listed companies. At the same time, it is also conducive to preventing the disorderly expansion of capital, preventing the arbitrage between different markets/boards (within China’s stock market), and maintaining an open, fair, and just order of IPOs.
How to see enterprises going public overseas? We have always been open to the companies’ (own) choice of their listing places. Choosing a suitable listing place is an independent choice made by enterprises according to their own development needs. Some enterprises are willing to go public overseas, and some enterprises that go public overseas are willing to return. It is a normal phenomenon to come and go, and we are generally supportive. It should be emphasized that no matter which market the enterprise is listed on, it must abide by the local laws and regulations, establish its awareness of being a publicly-traded company, and respect the rule of law and investors. Regulators around the world also need to further strengthen law enforcement cooperation with each other, jointly provide a good regulatory expectation and environment for the market, and jointly crack down on illegal activities. At the same time, we will effectively manage the relationship between openness and security, and the premise for enterprises to go public overseas is to comply with relevant domestic laws, administrative regulations, and regulatory requirements.
On giving full play to the function of commodity futures and hedging price risks. Since the fourth quarter of last year, driven by various factors such as global excess liquidity, unbalanced economic recovery, and widening gap between supply and demand, some commodity prices have continued to rise. Generally speaking, futures prices go in the same direction as spot prices, but the increase of futures prices is smaller than spot prices. At the same time, the price discovery and risk management functions of related commodity futures varieties have been brought into full play, and a number of domestic industrial enterprises have actively used futures option tools of crude oil, rebar, iron ore, cotton and other varieties to effectively hedge the risk of rising raw material prices, which has achieved good results in stabilizing the production and operation of the enterprises. It should be pointed out that due to various reasons, the pricing benchmark of some bulk commodities in international trade mainly depends on the international spot index and over-the-counter market quotation. Here, we call on relevant international institutions to establish a more rigorous and scientific index compilation mechanism, improve the transparency and binding force of quotations, and jointly improve the efficiency of commodity price discovery, so as to better maintain the stability and security of the global industrial chain and supply chain.
China is at the historical intersection of a new round of scientific and technological revolution, industrial transformation and transformation of development model. Shanghai is not only an international financial center, but also an important science and technology innovation center in China, which has unique advantages in promoting the integration of science and technology and finance. The China Securities Regulatory Commission will conscientiously implement a series of major decision-making arrangements made by the CPC Central Committee and the State Council on promoting the building Shanghai into an international financial center and supporting the high-level reform and opening up of Pudong New Area, and continue to actively participate in the building of factor markets, supporting financial industry institutions to become better and stronger, and optimizing the financial legal environment. We will continue to enable the STAR Market to play a demonstrative role in leading reforms, enrich the variety of stock and bond financing instruments and financial futures, support industry institutions to settle in Shanghai and expand business, further improve the institutional mechanism to facilitate foreign investors to invest in China's capital market, speed up the construction of a higher-level demonstration zone of rule of law and integrity in the capital market, and make greater contributions to the construction of Shanghai's ("five centers" )in the economy, finance, trade, shipping, and scientific and technological innovation) and its realization of high-quality development.