restricted access Speech at a Symposium on Stock Market Pilot Programs in Some Provinces and Cities
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92 12 Speech at a Symposium on Stock Market Pilot Programs in Some Provinces and Cities1 August 13, 1992 Since the publication of Deng Xiaoping’s important talks during his southern inspection trip, the momentum for reform and opening up has been booming across the country. Deng Xiaoping pointed out: “Are securities and the stock market good or bad? Do they entail any dangers? Are they peculiar to capitalism? Can socialism make use of them? We allow people to reserve their judgment, but we must try these things out.”2 This remark of Deng’s was in response to the question of whether stocks and stock markets are “capitalist” or “socialist” and dispelled the doubts in people’s minds. We can now boldly explore and experiment. Role of Stock Markets Shareholding and stock markets have a history of several centuries in the world. They were initially developed to expand economic scale and to spread out investment risk. They’ve definitely played a positive role in economic growth. First, they raised low-cost capital for economic development, reduced investment risk, and accelerated economic growth. Second, through the oversight of investors and through market pressures, they spurred enterprises to improve the management of their operations. Third, they helped optimize the allocation of resources in accord with market needs and helped adjust industrial structures. However, shareholding and stock markets can play a positive role only under specific circumstances. According to the general rules of market development , capital markets can only be established and grow after commodities markets (including markets for consumer goods and for investment products) have developed to a certain extent. At present, the commodities markets in our 1. On August 12–13, 1992, the State Council held a symposium in Beijing on stock market pilot programs in some provinces and cities. Participants included leading members of those provinces, centrally administered municipalities, and relevant State Council departments. This is the main part of Zhu Rongji’s speech at the symposium. 2. See excerpts from talks given in Wuchang, Shenzhen, Zhuhai, and Shanghai, in Selected Works of Deng Xiaoping, vol. 3 (Beijing: Foreign Languages Press, 1994), p. 361. Speech at a Symposium on Stock Market Pilot Programs in Some Provinces and Cities 93 country are still imperfect. The prices of a considerable number of goods are distorted because they are subject to controls, and the profitability of enterprises is affected to a very large degree by national policies. Under such circumstances, where the external environment of enterprise operations is very uncertain, we cannot expect shareholding and stock markets to develop very quickly. Shareholding is conducive to the separation of government from enterprises but in itself cannot necessarily solve the problem of self-restraint on the part of [business] operators. To solve this problem, we must make use of the mechanisms of market competition and competition for managerial talent, as well as various laws and regulations and the establishment and honing of various intermediary agencies. Of course this can’t be accomplished overnight. The reform of an economic system involves immense and complex systems engineering. No individual reform can charge ahead by itself. As a form of enterprise organization that did not emerge and grow until commodity economies had developed to a relatively advanced stage, the shareholding system cannot separate itself from reforms in other areas and achieve early success. If they deviate from the path of becoming more subject to law and more standardized , excessive speculation will take place, causing harm to the public interest , creating illusions of money, giving rise to a bubble economy, generating economic volatility, and inducing social problems. The problems that occurred this time when Shenzhen issued share subscription certificates3 were summed up by Hong Kong newspapers in one phrase. When you look at the reason, they were caused by an immature market economy. This notion demands our attention. Deng Xiaoping was very cautious about experiments with securities and stock markets. He said, “If, after one or two years of experimentation, they prove feasible, we can expand them. Otherwise, we can put a stop to them and be done with it. We can stop them all at once or gradually, totally or partially. What is there to be afraid of? So long as we keep this attitude, everything will be all right, and we shall not make any major mistakes.”4 We have to have a well-rounded understanding of Deng’s important directives. Provided we seek truth from facts, act resolutely in accordance with his instructions, actively create...