China introduces rules to bolster investor confidence

China unveiled a comprehensive set of rules on Friday aimed at tightening scrutiny over stock listings, public companies, and underwriters.

Regulators are intensifying efforts to instil transparency and stability in the capital market amidst recent volatility.

The new regulations entail stricter vetting processes for initial public offerings (IPOs), stringent crackdowns on securities fraud, and encouragement for listed firms to enhance dividend payouts and share buybacks. Addressing the press conference in Beijing, Li Chao, Vice Chairman of the China Securities Regulatory Commission (CSRC), stressed on the objective of fostering a “safe, regulated, transparent, open, vivid, and resilient” capital market.

China’s stock market, rebounding from five-year lows witnessed in early February, saw a resurgence following the appointment of seasoned regulator Wu Qing as the new CSRC chairman. Under Wu’s leadership, the watchdog has implemented a series of market-friendly measures, including heightened oversight over computer-driven “quant” funds and reinforced restrictions on short-selling activities.

In line with the regulatory agenda, the CSRC announced plans to bolster supervision of company listings, stressing prudent scrutiny of IPO applications to prevent excessive fundraising. Additionally, stringent penalties will be imposed on instances of accounting fraud and dissemination of false information. The CSRC also pledged to adopt “counter-cyclical adjustment” strategies in the IPO market to align with supply and demand dynamics.

Despite the CSI 300 Index witnessing a 4 per cent uptick this year, it remains 40 per cent below its peak in 2021, influenced by factors such as a slowing domestic economy, escalating property crisis, capital outflows, and geopolitical tensions with the West.

In a bid to fortify investor protection, the CSRC introduced measures to combat securities fraud and accounting manipulation, while preventing illegal reduction of holdings by major shareholders. Listed companies are encouraged to bolster dividend payouts and undertake share buybacks to reinforce market value management.