Hard crackdown on irregularities needed

The government has issued a range of directives aimed at providing greater protection for the interests of stock investors. Such a move has been widely regarded as long overdue.

Although it was applauded by many commentators for energizing the moribund Chinese stock market, the response from investors has remained lukewarm. The lead indicator continued to move listlessly during the past week. Cynics say it will take real and drastic actions to convince the many demoralized investors that the authorities have the will and capability to shape things up.

The results of a recent online survey of stock investors by a major Internet portal showed that more than 70 percent of respondents said they have lost money over the past several years. That's hardly surprising, considering the fact that the Chinese stock market has been among the world's worst performers for so many years.

There are, of course, underlying economic reasons for the losses, but what annoyed the majority of small investors, who account for the largest share of the market turnover, were the glaring market irregularities and the perceived excesses of corporate management in total disregard of shareholders' interests.

The market watchdog agency, the China Securities Regulatory Commission, has its enforcement efforts severely hampered by legal deficiencies, budgetary constraints and the influence of powerful vested interests. The CSRC obviously recognizes its limitations, and, in recent months, has demonstrated the resolve to strengthen its hand. That includes the recruitment of more investigators posted in Shanghai, home of the stock exchange.

What's more, the agency has initiated reform of the new share listing mechanism to pave the way for the expected lifting of the IPO moratorium in early 2014. The reform, if successful, could lead to the application of the self-regulation concept, as opposed to the existing approval approach to other areas of the agency's jurisdiction.

But the CSRC has yet to propose a detailed plan to adequately protect investors' interests against the vagaries of stock market manipulators and corporate management. Even in the IPO reform, the CSRC, for one reason or another, has gone one step short of arming itself with legal teeth to punish transgressors.

Many investors find that shortcoming to be the biggest disappointment. Obviously, investors want to see an all-powerful CSRC, which is their only hope should they seek redress for losses as a result of market irregularities, especially when litigation seems like a poor alternative.

The so-called goldfinger case involving Everbright Securities is a case in point. Although the stock brokerage was fined by the CSRC for insider trading, no court has yet agreed to hear the lawsuits filed by investors claiming damages against Everbright.

Some commentators have contended that it's well-known the Chinese stock market is often likened to a casino that is not for the faint of heart. Investors risk their money voluntarily, believing that they can outsmart the market. For that reason, they have only themselves to blame for any loss.

That's a brutal argument, ignoring the fact that many investors put their money at risk in the stock market because there is hardly any other viable alternative to parking it in bank deposits earning negative interest income after inflation. These investors are mostly small business owners, housewives and retirees, who don't have sufficient capital to invest in property after paying off the mortgages on their own homes.

They may not be sophisticated enough to read the fundamentals of the equities market nor coolheaded enough to fully appreciate the risks. But they aren't particularly greedy. They just want a fair deal.

The author is an editor with China Daily. Jamesleung@chinadaily.com.cn