Capital market reform

Reform of China's stock market policies must be carried out cautiously and in line with actual market conditions, an editorial in China Business News said. Following is an excerpt from the editorial:

In the wake of last year's turbulence in the A-share market, Liu Shiyu, chairman of the China Securities Regulatory Commission, told the media that China's capital market must be regulated in a manner that is market-oriented and governed by law.

The regulatory chief, who pledged to press ahead with the introduction of a registration-based initial public offering system, said under no condition will China reintroduce a circuit-breaker mechanism in the coming few years. The mechanism was dismantled in January after it triggered sharp falls in stock indexes.

As much as China needs to adopt the registration-based IPO system, it will be a lengthy process and will be launched only when market conditions and the legal environment are appropriate, Liu said.

Institutional investors have yet to give their best performance in leading the reform, and many individual investors tend to be speculative. From time to time, supervisory authorities would either play the game of peek-a-boo with the markets, or overstep the mark, leading to excess regulation.

All these have to change to keep the reform on the right track. Policymakers have to take into account the actual market environment and solicit public opinions on certain policies. This is necessary, given the introduction and quick scrapping of the circuit-breaker mechanism.