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China stiffens regulation after recent stock market collapse

Draft guidelines cover increased scrutiny of public listing candidates and gatekeeper intermediaries.

By RFA Staff 2024.03.15 -- China's top securities regulator has released new guidelines to strengthen regulation after the collapse of Chinese stock markets in the first two months of the year, wiping off billions of dollars as the economy teeters.

The draft guidelines will see the China Securities Regulatory Commission (CSRC) increase its oversight and supervision of listed companies, brokerages and public fund companies, and accelerate the building of "first-class" investment banks, the regulatory agency's vice chairman Li Chao said in a press conference Friday in Beijing.

By raising the entry bar for public listings, Li said it will be improving the quality of the companies from the "source".

"We will strictly prohibit companies from blindly listing to make money, overfinance, fabricate financial reports or report false or fudge information. Such behaviors will be seriously and legally dealt with," he said.

According to Yan Bojin, head of the CSRC's public offering supervision, the increased regulations were a response to the findings that listing candidates have unsound internal control mechanisms, irregular corporate governance, and financial fraud in some companies.

Similarly, supervision of gatekeeper responsibilities of intermediaries like the stock exchanges will be strengthened, as will regulation of securities firms and public funds, Yan added.

The stock market has been roiled by frequent turmoil in the past few years, weighed down by a real estate crisis characterized by defaults along with Beijing's crackdown on sectors like technology and private tuition services. While it isn't the economy, it is a barometer of investors' expectations and confidence level of China's prospects.

Between December and early February, the benchmark Shanghai Composite Index fell nearly 11%. It only began to rebound, helped by Beijing's recent measures to put a floor under share prices.

It did so by pushing state-owned funds to invest in stocks, curb short selling that bets on price declines, and cracked down on trades by quant funds, which use computer algorithms to catch investment opportunities.

Wu Qing, the newly appointed CSRC chairman also known as the "broker butcher," has taken aim at quant funds that were blamed for worsening the slump in a stock market made up of mostly retail investors. The quant fund industry is estimated to have doubled in value in the past three years as punishing losses spread across the broader market.

Edited by Mike Firn and Taejun Kang.

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