China seeks tougher delisting rules to clean up stock market

BEIJING - China's regulator and stock exchanges have released draft rules that will force companies to exit the equity market for serious law violations.

If companies are found of fraudulent initial public offerings (IPO), cheating in financial disclosures or law violations, they will be ousted from the market, according to draft rules released by the Shanghai and Shenzhen stock exchanges on March 9.

The move came amid tougher market oversight and more severe punishment for illegal trading in recent years.

China had more than 3,500 listed firms, with a total value nearing 58 trillion yuan ($9.16 trillion), as of the end of last year.

While rapidly growing in size, the A-share market is struggling with problems such as inadequate implementation of delisting policies, which keeps dysfunctional companies in the field and undermines market confidence.

Since the first delisting in 2001, China's A-share market has only seen 57 firms exit the market, according to Wind, an information service provider

In rules published earlier this month, the China Securities Regulatory Commission (CSRC) said China would step up efforts to delist "zombie companies" and those with long-term losses and severely poor financial status.

The move will be a key step to foster an orderly market and improve investor protection, said Jiang Mingde, a consultant with Yixinweiye Fund.

In addition to delisting reforms, the CSRC has tightened approval procedures for IPOs since a review committee came into office in October, rejecting or suspending more than half of IPO applications.

Official data showed the CSRC issued 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.

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