Lu Suyuan, General Manager Of China Securities Index Co., Ltd.: Expand The Influence Of China'S Index And Firmly Grasp The Pricing Power Of Capital Market

From 1990 to 2020, China's capital market has grown from scratch and from small to large. During this period, the indexes and their derivative investments which represent the capital market have also made great progress.

With the birth and growth of capital market, what has China's securities index experienced? In the foreseeable future, how will passive investment with bright prospects interact with the index effectively? The 21st century economic reporter interviewed Lu Suyuan, general manager of China Securities Index Co., Ltd., and had in-depth exchanges on the above issues.

Lu Suyuan said that one of the historical missions of CSI at the beginning of its establishment was to build an index system representing China's capital market, and to form a greater influence and authority at home and abroad, so as to keep the pricing power of China's capital market in its own hands and maintain the stability and financial security of China's capital market. In addition, through participating in the construction of ETF, ESG and other contents, the index drives capital and serves the national strategy.

The historical leap of China's index investment

"21st century": the earliest index in China, Shanghai Composite Index, appeared in 1991, until the explosive development of the index after 2000. In 2002, the first index product was produced. Can you talk about the development process of domestic index investment?

Lu Suyuan: the index has three main functions: market representation, performance benchmark, and the target of index products and index derivatives. The function evolution of the index is in line with the development of the market. From index to index product, it needs to go through a process of gradual maturity of market conditions.

In 1792, the New York Stock Exchange was established. More than 100 years later, in 1896, the first stock index, the Dow Jones industrial average, was officially released. It was mainly used to characterize the operation of the U.S. market at that time. Since then, the Nikkei 225 index and the standard & Poor's 500 index, which have been published all over the world, have also played the function of index representation.

In 1970, the development of modern financial theory expanded the concept of index investment. At the same time, the rise of mutual funds in the United States and the growing number of institutional investors increased their shareholding ratio to 30%. In this context, the first index fund was born in 1975 and the first ETF appeared in 1993, which not only further enriched the investment function of the index, but also opened the prelude to the development of index fund and ETF.

In 2002, the size of ETF in the US market was about 100 billion US dollars. The development of American index investment has brought a new perspective to the global capital market. In 1999 and 2000, the first ETF products were issued in Hong Kong market and European market respectively, and global index investment began to develop gradually.

The index investment in the domestic market has also experienced a process in which the basic conditions gradually come into being. The Shanghai composite index was officially released on July 15, 1991 to reflect the overall operation of the Shanghai stock market. Due to the initial establishment of the capital market, there were only 8 stocks in the initial index sample, with a market value of 1.234 billion yuan.

Since then, the development of capital market has been increasingly mature. First, the establishment of China Securities Regulatory Commission in 1992 marked that China's capital market began to be gradually incorporated into the unified regulatory framework of the whole country, laying an important regulatory foundation for the development of the capital market; second, the "Interim Measures for the management of securities investment funds" in 1997 and the "Pilot Measures for open-ended securities investment funds" in 2000 opened the securities investment fund standards The development stage provides an important institutional basis for index investment; the third is that the group of listed companies has been expanding continuously. In 2000, the number of listed companies reached 1088, and the total market value reached 4.81 trillion yuan, providing a good market foundation for index investment.

In September 2001, China's first open-end fund Hua'an innovation was born, and in October 2002, China's first index fund, Hua'an Shanghai Stock Exchange 180 index enhancement fund, was established, which opened the era of domestic index investment. Since then, the first ETF was established in 2004 and the first cross market ETF was established in 2012. During this period, QDII index fund, Bond ETF, stock index futures and options and other products have also come out.

At present, the index system of the domestic securities market has been gradually improved, the types of index products are constantly enriched, the trading mechanism is more perfect, the concept of index investment is gradually popular, and the prospect of index investment is very broad.

Therefore, it has been nearly 80 years since the first index was released to the first index product. We published the index in 1991 and the first index product in 2002. It took us 11 years, and it is still very fast.

The 21st century: the Shanghai Shenzhen 300 index, which was launched in the early seven years, and the newly launched science and technology innovation 50 index, are the representative scale indexes of the domestic market. What do you think is the main experience in the compilation process?

Lu Suyuan: before the release of the CSI 300 index, both Shanghai and Shenzhen markets had their own independent composite index and component index. However, there was a lack of a set of cross market index system reflecting the overall trend of Shanghai and Shenzhen markets, so it was difficult for investors to directly investigate the overall performance of China's A-share market.

Shanghai Shenzhen 300 index is not only the first cross market index and the first stock index futures target index in China, but also plays a role as the cornerstone of cross market index system. In the process of compilation, Shanghai and Shenzhen stock exchanges respectively set up special groups to study cross market index, and actively explored and fully prepared the index preparation scheme, calculation and release, index management, etc. With the joint efforts of Shanghai and Shenzhen stock exchanges, after full demonstration and continuous improvement, the Shanghai Shenzhen 300 index compilation scheme has been formed, which not only draws lessons from international advanced experience, but also considers the actual situation in China.

Compared with the original index compilation method, the Shanghai Shenzhen 300 index adopts a compilation method which is more in line with the international mainstream component index, with liquidity as the sample screening threshold and market value representativeness as the core sample selection rule, which conforms to the positioning of the investability index and improves the representativeness of the component index. This set of core index compilation rules has experienced the historical test, and has become the main method of domestic component index compilation. If the domestic index investment is compared to a building, the CSI 300 index is undoubtedly one of the most important foundations. Shanghai and Shenzhen 300 index reflects the general situation and operation of stock price changes in China's securities market. It is suitable to be used as the evaluation standard of investment performance and to provide basic conditions for index investment and index derivatives innovation. Based on the compilation and management experience of CSI 300 index, CSI has continuously enriched the index categories, and currently manages nearly 5000 indexes.

The establishment of science and technology innovation board and pilot registration system is the basic institutional arrangement for deepening the reform of capital market. As an experimental field of capital market reform, the basic institutional rules of the science and technology innovation board are more significant than those of the existing board, such as allowing companies with different rights of the same share to be listed, supporting the listing of unprofitable innovative enterprises, and issuing China's depository receipts (CDR). Based on the existing component index method, the index fully considers the particularity and innovation of the science and technology innovation board system, and tries its best to do so To take into account the international practice, but also based on the actual situation of the scientific and technological innovation board market. The launch of the science and technology innovation 50 index conforms to the market development, helps to improve the market function, and provides an important basis for the subsequent development of the science and technology innovation board index.

21st century: in 2005, China Securities Index company was established in Lujiazui financial center, Pudong, Shanghai. Can you give a detailed introduction to the background of the establishment of the index company at that time, and whether there are some historical missions?

Lu Suyuan: the establishment of China Securities Index company is of great significance in the development history of China's securities market. There are several backgrounds for the establishment of China Securities Index Company: first, to develop a unified market index to provide the market with investment targets and benchmarks reflecting the overall operation of the market, so as to meet the needs of the development of China's capital market; second, to provide investment targets for financial derivatives such as stock index futures to promote financial innovation in the capital market; third, based on deeper reasons, it hopes to make good use of the index We should count these important financial resources, give full play to the role of the index in serving the development of the real economy and the strategy of scientific and technological innovation, further enhance the wealth management function of the capital market, and promote the role of the capital market in the allocation of international factors.

Based on the above background, in 2005, Shanghai and Shenzhen stock exchanges jointly established the China Securities Index company, which is the first professional company specialized in index compilation, operation and service. Over the years, CSI has always been building a domestic authoritative and internationally influential professional index institution, leading and promoting the development of domestic index investment, serving the real economy and national strategy, and serving the function of wealth management in the capital market.

After 15 years of development, CSI has become a leader in China's index field. At present, there are nearly 5000 corporate management indexes, with asset types covering stocks, bonds, funds, etc., and index types include broad base, industry, theme, strategy, etc. With a tracking asset scale of more than 1 trillion yuan and a domestic market share of more than 60%, it is the largest financial market index provider with the largest number of products in China. It has been rated as "Asia's best index supplier", "Asia's best ETF supplier", "China's best index supplier", etc. The existing stock index futures in China are managed and maintained by China Securities Index company.

In order to better serve the high-quality development of the real economy, the CSI has developed a series of indexes such as scientific and technological innovation, state-owned enterprise reform, regional development and green development, reflecting economic transformation and industrial structure upgrading, providing rich targets for ETF and other index products and guiding resource allocation.

In order to enhance the function of wealth management, promote the development of equity public funds, and promote the entry of long-term funds into the market, CSI actively enriched index tools.

In the aspect of enriching risk management tools in capital market, it provides diversified index targets for derivatives such as stock index futures and options.

In terms of improving market infrastructure, while expanding and strengthening the index business, we have also actively developed new business systems such as bond valuation and credit rating, providing a comprehensive reference index for the market.

In terms of promoting the allocation of international capital elements, on the one hand, CSI actively promoted the internationalization of A-share index, demonstrated the operation status of domestic capital market, and enhanced the attention of international investors. Meanwhile, it actively registered through independent authentication of IOSCO and BMR, and joined the global index Industry Association Executive members. Through strengthening the compliance construction and actively participating in the global industry cooperation and exchange, the company further enhances the international influence of domestic index industry; on the other hand, it actively promotes the issuance of overseas index products. At present, there are 74 overseas index products with a scale of nearly 88 billion yuan, attracting international capital to allocate Chinese assets and playing the role of index in global capital factor allocation.

Optimization and development of index investment in China

21st century: the Shanghai composite index is an index with great market influence, and its compilation method revision has also attracted high attention from the market. Can you talk about the revision of the Shanghai Composite Index?

Lu Suyuan: the Shanghai composite index was released on July 15, 1991. It is not only the first stock index in China, but also the composite index with the longest history, the most complete data and the most extensive influence in China's securities market.

Since its release, the Shanghai Composite Index has been used to reflect the overall operation of the Shanghai securities market. It has been widely accepted and used by investors and the public at home and abroad, with great market attention and influence. Therefore, it is necessary to be very cautious in revising the compilation scheme of the Shanghai Composite Index. In fact, we have been keeping a long-term follow-up study on the major indexes including the Shanghai Composite Index, and we have made several fine-tuning on the Compilation Rules of the Shanghai Composite Index in history.

After 30 years of development, many changes have taken place in China's capital market. Some Compilation Rules of the Shanghai composite index are not suitable for the current market, such as premature inclusion of new stocks in high volatility state, risk warning stocks, etc., which are not conducive to the stability of the index, and not including the science and technology innovation board stock, which is not conducive to the representativeness of the index. In recent years, there have been many voices from all walks of life for the revision of the Shanghai composite index compilation scheme. During the two sessions in 2020, market professionals, including representatives, once again proposed to improve the compilation method of Shanghai Composite Index.

The revision of the Shanghai composite index compilation plan fully draws on the experience of international index compilation and revision, based on the actual development of the domestic market, eliminates risk warning stocks, extends the time for new shares to be included in the index, and includes the listed securities on the science and technology innovation board, which is conducive to the Shanghai composite index reflecting the overall performance of Listed Companies in Shanghai more objectively and truly. This revision is a partial optimization of the Compilation Rules of Shanghai Composite Index, and will not change the positioning of Shanghai composite index reflecting the overall performance of Shanghai market.

In the process of revision, we followed the scientific requirements and sorted out the sample space, sample selection method and sample adjustment of Shanghai Composite Index one by one to form the revision direction of Shanghai Composite Index. On this basis, it has organized and held several symposiums on index compilation and revision, established an expert consultation mechanism for index compilation, actively consulted experts' opinions and suggestions from fund companies, insurance asset management, domestic and foreign index companies, universities and research institutes, and finally formed the revision scheme of Shanghai Composite Index. From the whole process, we can see that we are very cautious in revising the Shanghai Composite Index.

From the actual effect, the revision of the Shanghai composite index further improves the market representativeness and stability of the index, more accurately characterizes the overall performance of the Shanghai market, and is more recognized by investors. Nine years later, the Shanghai Composite Index has established a new product. Cathay Pacific Shanghai Composite Index ETF was put on sale on August 10, 2020, with a current scale of 1.3 billion yuan. The other two Shanghai Composite Index ETF products The scale has also increased.

"21st century": you mentioned that by October 2020, the scale of domestic index funds will increase by nearly 1.7 trillion, a year-on-year increase of 40%. What is the reason for this sharp increase? Can the growth rate be maintained?

Lu Suyuan: since 2018, the scale of domestic index investment has grown rapidly, among which ETF is an important driving force, which mainly benefits from several reasons:

First, the steady development of the national economy has laid a good economic foundation for index investment. In 2019, China's total GDP is close to 100 trillion yuan, accounting for more than 16% of the world's GDP. China's economic growth contributes nearly 30% to the world's economic growth, which is an important driving force for the development of domestic index investment.

Second, the capital market reform has been continuously promoted, the efficiency of market pricing has been improved, and the degree of opening to the outside world has been deepened, providing a good market environment for index investment. In recent years, Shanghai and Shenzhen stock exchanges have continued to strengthen the construction of market infrastructure and optimize the institutional arrangements for ETF subscription, which provides an important guarantee for the rapid development of index investment.

Third, the structure of domestic investors has been continuously optimized, and the allocation of index products has been improved. Under the background of the continuous entry of long-term funds into the market, the issuance of pension funds / fofs and other products, the increase in the proportion of A-shares allocated by foreign institutional investors and the improvement of the degree of specialization of individual investors, ETF has gradually become an important way for investors to allocate equity assets.

Fourth, index products are increasingly abundant, which meet the diversified needs of investors. After more than ten years of development, the domestic market has formed a relatively complete index system and rich product categories. Cross market ETF, industry ETF, Bond ETF, commodity ETF, ETF options and other products are constantly enriched, which broadens the extension of index product innovation. Index products have become an important tool for investors to participate in market development and share economic growth.

As for whether this growth rate can be maintained? I think from the perspective of international market development and domestic environment, domestic index investment is in an important period of development opportunities.

First of all, compared with the international market, China's index investment has a larger space for development. Taking the U.S. market as an example, the U.S. ETF market has developed for nearly 30 years and is still developing rapidly. The scale of American ETF exceeds 5 trillion US dollars. The proportion of index funds and ETFs in the fund market exceeds 39%, which is more than double that of 18% in 2009. At present, the development of index products in the domestic market has only been more than ten years, with a scale of nearly 1.7 trillion yuan. The number and scale of index products account for about 15% and 9% of public funds respectively, and there is still a large space for development.

Secondly, the structure of domestic investors has been continuously optimized. With the gradual entry of pension and other long-term funds into the market, the participation of overseas institutions and the proportion of institutional investors continue to rise. Taking Shanghai stock market as an example, the stock market value of domestic and foreign professional institutional investors is nearly 20%, significantly higher than that of nearly 15% in 2016. With the increase of the proportion of institutional investors, it will further enhance the allocation demand of index investment while playing the role of "ballast".

Third, from the perspective of market environment, the implementation of the new asset management regulations further strengthens the development trend of public offering products as tools, and changes the ecological environment of the asset management industry. Index products with multiple advantages such as clear style and low rate have become important basic tools in the field of asset management. Moreover, the pilot work of public offering investment consultants will be promoted, and the advantages of index investment and asset management trading platform will have a better synergy effect. From the international market point of view, the underlying assets of investment advisory platform are mainly index products, which also provides better development opportunities for index investment.

Finally, from the perspective of domestic economy, China's economy has always maintained steady growth and strong resilience. In the context of the global economic downturn affected by the epidemic this year, China's economy can still maintain positive growth. Looking forward to the future, China's economic growth potential provides an important economic basis for the long-term healthy development of domestic index investment.

21st century: what conditions do you think a successful index product should have?

Lu Suyuan: first of all, the index itself is investable. Take Hushen 300 as an example, as a broad base index, it has a strong investability. First, its index is highly representative, which is the core index type, reflecting the overall performance of stocks with different market value and high market attention; second, the wide base index tracking product scale is large, which is an important tool for investors to enter the market; third, the futures term option products based on broad base index are relatively rich and the product ecology is good, which is conducive to the risk management of institutions.

Secondly, the product scale should be large. If the product scale is not large, on the one hand, it is easy to bring greater volatility, on the other hand, it can not bear large capital.

Therefore, Hushen 300 is successful. Although there are only 300 stocks, it covers more than half of the market value of a shares. According to statistics, by the end of the third quarter of 2020, the tracking asset scale of CSI300 index is more than 230 billion. The total scale of all index funds and ETFs with the management index of China Securities Index Company as the target is about 1 trillion, and the scale of CSI 300 products accounts for nearly 1 / 4.

Leading capital to serve national strategy

21st century: at present, many institutions have published ESG evaluation scores for enterprises from their own perspective and perspective. Recently, China Securities Index company has also released ESG evaluation methods. Compared with domestic ESG evaluation ecology, what role does it play?

Lu Suyuan: the goal of carbon peak and the vision of carbon neutralization are important strategic decisions in China at present. There are relevant work arrangements in the 14th five year plan and the recent central economic work conference. From the perspective of capital market, ESG is one of the important measures to implement the national carbon peak and carbon neutral vision.

At present, the domestic ESG field is still in the early stage of development. Many institutions have issued their own ESG evaluation system, which has played a positive role in the development of ESG concept in China. However, due to different institutional backgrounds and perceptions, the evaluation results of the same company are often quite different. Therefore, a more objective and comprehensive ESG evaluation system and standard is urgently needed in the market to provide an objective reference for listed companies and investors. Moreover, most institutions lack the grasp of ESG practice, and the quantity and scale of related products are very small, which fails to effectively play the role of capital market in serving the sustainable development of real economy. More importantly, at present, international institutions have an important voice in the field of domestic ESG. However, the understanding of Chinese companies by international institutions is not deep, and the ESG evaluation results are not systematic, which is seriously inconsistent with the actual situation in China. Therefore, China's market needs to reflect China's actual ESG evaluation standards.

As one of the important forces of capital market infrastructure construction, CSI has always been shouldering the responsibility of serving the real economy and national strategy. We are committed to building a domestic authoritative and internationally influential ESG evaluation standard, serving the strategic goal of the national carbon neutral vision, playing an important role in promoting the sustainable development of the real economy by the capital market, improving the quality of listed companies, building China's ESG standards, and promoting the best practice of China's ESG. China Securities Index company actively arranges in the field of ESG, and has released the evaluation method of China Securities ESG, hoping to play a role in several aspects

The first is to build China's ESG evaluation standards and enhance its international influence and authority. At present, most of the international organizations do not consider the actual situation of the Chinese market, and the ESG scores of Chinese companies are systematically low. Most of them are at lower levels such as B and CCC, which is inconsistent with the actual situation in China. Therefore, it is very important and urgent to construct an ESG evaluation method suitable for China's reality and to build China's ESG standards.

The second is to carry out ESG evaluation on listed companies, so as to promote listed companies to implement the strategic requirements of national carbon peak target and carbon neutral vision. China Securities ESG evaluation provides benchmarking benchmark for listed companies, promotes ESG information disclosure of listed companies, helps enterprises identify potential risks of ESG, reduces carbon emissions, realizes long-term sustainable development of enterprises, and improves the quality of listed companies. At the same time, China Securities ESG evaluation can help investors identify the risk and income sources of long-term operation of enterprises, and play an external supervision role of investors.

The third is to build a bridge from ESG concept to investment, promote the development of domestic ESG investment, and play the role of capital market in serving the sustainable development of real economy. China Securities Index Company issued the ESG index system to promote and encourage listed companies to attach importance to the concept and management of ESG through the mechanism of index survival of the fittest, so as to form a virtuous circle. At the same time, ESG index provides investment target for investors to practice ESG, and ESG evaluation data provides services for institutional investors to manage portfolio ESG risks, and finally improves the enterprise's attention to sustainable development concept through the power of capital, so as to promote the sustainable development of the whole society.

CSI will actively promote the development of domestic ESG industry and make unremitting efforts to establish China's ESG standards and enhance its international influence.

21st century: what is the plan of CSI index company in the follow-up index construction?

Lu Suyuan: in the past 15 years since the establishment of the index company, although it has made a lot of achievements, there is still a lot of gap between the future development requirements of index investment and the improvement of the ability to serve the national strategy and the real economy. Looking forward to the future, CSI will continue to strengthen domestic index investment, promote the healthy development of the index industry, and make greater contributions to the construction of capital market infrastructure and the service of the real economy.

In terms of index layout, we will focus on the upgrading of domestic industrial structure and the construction of multi-level capital market, and provide a series of indexes reflecting emerging industries, advantageous regions, multi-level markets and interconnection, so as to provide more abundant index tools for the market.

In terms of green finance, we will advocate and lead the sustainable investment concept and practice represented by ESG, provide ESG evaluation methods, data and services for the market, and implement the national carbon neutral vision and the green development strategy of the capital market.

In terms of infrastructure, we will continue to improve the infrastructure of the bond market, enrich the bond index system, and provide better bond valuation and risk control services.

In terms of promoting the internationalization of A-share index, we will further improve the internationalization level and continuously enhance the international influence of the core index of China Securities.

In promoting the index industry, CSI will further improve the technology service level of the index industry, explore the construction of digital intelligent service platform, and provide more abundant and efficient index services for customers.

At present, the company is comprehensively promoting the digital transformation and striving to advance towards the strategic goal of "financial technology company with index business as the core and providing diversified services".

21st century: what do you mean by building the CSI into a technology company in the future?

Lu Suyuan: from the perspective of the existing business of CSI, there are several business modules, such as index, valuation, rating and data, whose basic logic is data. So from the perspective of business model, we are very dependent on technology and technology.

From the perspective of service means, most of the services provided by the company to institutions are data services, which can be realized more efficiently and quickly through technical means.

From the perspective of product chain, the business of CSI mainly focuses on index to provide diversified data services. Diversification reflected in the data may imply various parameters such as risk control, quantitative investment, ESG evaluation and so on. It can be seen that the whole service chain has been extended, and technology is needed to meet the needs of the whole investment chain, such as the investment side and the risk side.

In addition, there are a large number of private equity funds and quantitative investment institutions in the market that need personalized data. These institutions are also one of our important customers, and their needs should also be realized by means of technology.

China Securities Index company set up a digital office at the end of 2019. Digital transformation is not simply to build two technical systems, but to innovate, upgrade and change the business model. Next, the company will gradually launch a series of businesses, especially data services.

Without modern technology, it is impossible to provide diversified and personalized data services. Therefore, we need to use digital way to change the business form and better serve the capital market. Of course, the nature of the business will not change.