An investor at a securities brokerage in Huaibei city, Anhui province. Premier Wen Jiabao said on Monday that the government will deepen reform of the financial system by strengthening the protection of investors' returns and interests. [Photo / China Daily]

Top securities regulator wants to set up sound, fair market for investors

China's top securities regulator could introduce delisting procedures for the main board by mid-year to insure a sound, fair market in which investors' interests are protected.

"A delisting system, which can improve market efficiency, should be launched on the foundation of an investor protection system," Guo Shuqing, chairman of the China Securities Regulatory Commission (CSRC) and a deputy of the National People's Congress (NPC), said on Monday.

Guo added: "We are still studying methods for injecting pension funds into the stock market."

The government will deepen the reform of the financial system by "completing and improving the new share issuing and delisting systems and strengthening the protection of investors' returns and interests," according to a report delivered by Premier Wen Jiabao on the first day of the NPC session.

Delisting procedures allow stock exchanges to suspend and cancel share trades for companies that have been in the red for a certain period of time.

The Shenzhen Stock Exchange released a draft delisting procedure for the growth enterprise market on Nov 29. That procedure allows for delisting if the daily closing price drops below book value for 20 consecutive trading days.

"In the A-share market, the delisting mechanism should be introduced as early as possible," said Zhang Ning, a researcher with the Financial and Securities Institute at the Beijing-based Renmin University of China.

The absence of a delisting procedure has prompted speculation in unprofitable public companies, increasing overall market volatility, said Zhang.

The chairman also said that it was possible to start trading high-yield bonds on the market in the first half of the year, which would help small and mid-sized companies raise money. But Guo cautioned small investors against buying these new bonds, saying they have relatively higher risks.

The agency is also studying the introduction of treasury bond futures, with trading expected to start in the coming months.

Investors, especially individuals, should be warned about the potential risk of an investment through improved disclosure by listed companies, Guo said.

By Dec 31, individual holdings accounted for 26.5 percent of the value of all A shares, compared with 57.9 percent for corporate shareholders and 15.6 percent for professional investment institutions, according to the CSRC.

"China's capital market is more vulnerable to big shocks" because of the excessive proportion of individual shareholders, Guo said earlier in an interview with the People's Daily.

The Shanghai Composite Index, which tracks the biggest companies' shares on the Chinese mainland, dropped 0.64 percent to 2445 on Monday.

The nation's capital market reform should focus on supporting industrial production as well as technological improvements and cultural innovation, Guo said.