Key guideline to help boost confidence

China released a key guideline for the high-quality development of the capital market on Friday.

The move, experts said, heralds the latest round of market reforms that reinforce investor confidence and sets the stage for a bullish performance by the country's capital markets.

The guideline, released by the State Council, China's Cabinet, seeks to strengthen regulation, forestall risks and promote the high-quality development of the capital markets.

This is the third guideline document issued by the State Council on the country's capital market in the past two decades, following the ones in 2014 and 2004.

Wu Qing, chairman of the China Securities Regulatory Commission, said, compared with the previous guidelines, the latest one stresses on more effective protection of investor rights, especially small and medium-sized ones, strict market supervision and addressing prominent issues and weak links in the market.

Wu told Xinhua News Agency that the guideline has mapped out a development blueprint for China's capital market in aspects such as investor protection, quality of listed companies, regulatory capacity and governance system.

The guideline demands strict regulation for entry into the capital market, strengthened oversight over listed firms, securities firms and fund management companies, intensified delisting regulations, enhanced supervision of high-frequency trades as well as deeper reform and opening-up.

In a bid to implement the guideline, the market regulator said in a draft regulation on Friday that companies will need to meet higher requirements in terms of research and development investment, invention patents and business income growth to qualify for initial public offerings on Shanghai's STAR Market.

Yan Bojin, head of the commission's department of public offering supervision, said it is also working with stock exchanges to raise the listing standards — in terms of revenue and profit — of the main boards and Shenzhen's ChiNext board, mulling to raise the requirement of net profits earned in the past year to 100 million yuan ($13.8 million) and 60 million yuan, respectively.

The CSRC said in a separate draft policy document that it has decided to significantly raise the proportion of IPO applicant companies randomly selected for on-site inspection, from 5 percent to 20 percent.

The commission said it will lower the thresholds for delisting due to financial fraud. A listed company will face delisting in scenarios where a huge amount of funds are occupied by major shareholders, the company's internal control has been issued nonstandard opinions for several consecutive years, and where contention for controlling rights has prevented investors from effectively obtaining information about the company.

On programmatic and high-frequency trading, a draft regulation the CSRC released on Friday said stock exchanges are eligible to charge differentiated fees for high-frequency trading, and implement strict supervision of any abnormal high-frequency trading behavior.

Zhang Wangjun, an official at the CSRC, said both domestic and foreign programmatic investors should report necessary information, including account information and trading strategies. Domestic and foreign investors are subject to the same monitoring standards for trading.

The Shanghai Composite Index edged down 0.49 percent to close at 3,019.47 points on Friday.

Yang Delong, chief economist at First Seafront Fund, said the SCI has returned to the 3,000 points level as investor confidence remains insufficient. Against this backdrop, the guideline proposes specific measures to build a healthy capital market, which will help vitalize its performance over the long term, Yang added.