China toughens capital market supervision, protects investor interests

BEIJING - Those involved in illegal capital market activities have reasons to be fearful in 2018 as China's top securities watchdog takes a tougher stance on market irregularities.

The China Securities Regulatory Commission (CSRC) rejected six of seven initial public offering (IPO) applications Tuesday, making it the biggest single day of rejections this year.

"The IPO review will become more and more strict in 2018, and the requirement for the authenticity of corporate finance and the business compliance has been raised to an unprecedented level," the CSRC said in a statement.

The tightened control of the country's public listings was the latest move following toughened market oversight and severe punishment for illegal trading in the past year to prevent risks and protect investor interests.

To curb market irregularities, the CSRC last October set up a new committee in charge of reviewing IPO applications. The committee has the ultimate say in deciding whether a company is qualified to go public in China. It also regulates fraud.

China's review-based IPO approval system has been long criticized by investors for giving reviewers too much power, while suppressing the function of the market.

To put checks on the powers of reviewers, the CSRC has also set up a committee overseeing IPO applications, refinancing, and mergers and acquisitions.

"No forbidden zones, full coverage, zero tolerance and life-long accountability" will be the duties of the supervision committee, said CSRC chairman Liu Shiyu.

Since the beginning of the year, the approval rate of the IPO review committee is only 44.44 percent, significantly lower than 81 percent recorded in the first three quarters of 2017. Over the past three years, the rate stood above 90 percent, according to Wind Info, a financial information service provider.

Abnormal financial conditions, inability to generate sustainable profits and questionable authenticity of application documents were among the reasons for the rejections.

Aside from tightened control of public listings, the CSRC also created severe punishments to deter market violations and make the capital market function properly.

The CSRC decided on a record high of 224 administrative penalties in 2017 with the combined total of the fines rising 74.74 percent, to a historic high of 7.48 billion yuan ($1.14 billion).

The fines were handed out for various violations, including information disclosure problems, market manipulation and insider trading, the statement said.

The efforts have paid off. The stock market in 2017 was much steadier compared with a year earlier. Only three trading days registered changes beyond 2 percent last year, and the fluctuation ratio of the benchmark Shanghai Composite Index recorded a historic low of 13.98 percent, according to the CSRC.

Zhang Shenfeng, assistant chairperson of the CSRC, said last week that China would continue to strengthen oversight in the securities market in the new year to keep it fair, open and impartial.

"The regulator will continue to crack down on violations of securities laws and regulations, including insider trading and market manipulation," Zhang said.

The CSRC will carry out research and set up an investor compensation fund to better protect investor interests and give priority to supervision innovation, including better on-site surveillance and the use of big data to improve efficiency.

"China will make the capital market better serve the real economy, and the capital market will not alter its direction of reform toward market-oriented and law-governed development," Zhang said.