CITIC Securities: Equity Finance Needs Market Cap Growth for Greater Role
CITIC Securities has released a research report suggesting that with the gradual decline of land-based finance, local governments require new funding sources, and equity finance is poised to provide incremental contributions. The report outlines two main avenues for equity finance: primary and secondary market operations. In the primary market, local governments can leverage their unique advantages through investment guidance funds to participate in early-stage investments, aiming for long-term capital appreciation. For the secondary market, the focus is on immediate gains derived from state-owned enterprise dividends and market revaluations. Drawing parallels with international practices, CITIC Securities asserts that a significant increase in equity market capitalization is objectively necessary for equity finance to fulfill a more substantial role. Therefore, expanding the equity market and maintaining a steady, upward trend are identified as strategic priorities. The growing importance of equity finance is expected to highlight the long-term investment value of China's A-share market.
This report from CITIC Securities posits a strategic shift in Chinese local government finance, moving from land-based revenue to equity market participation. The proposed "equity finance" model aims to generate new fiscal resources by engaging in both primary market investments via guidance funds and secondary market activities like dividend collection and market capitalization enhancement from state-owned enterprises. The analysis suggests that a larger, more robust equity market is a prerequisite for this strategy's success, implying a need for policies that foster sustained market growth rather than short-term speculation. This approach could represent a structural adjustment in public finance, seeking to align government revenue generation with the development of capital markets, potentially influencing long-term investment strategies and corporate governance within state-controlled entities.
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