China's State Council released a sweeping guideline on April 12, only the third of its kind, to strengthen regulation, tackle risks and promote the high-quality development of the capital market. The guideline maps out plans to boost the capital market through 2035. Chinese securities regulators and stock exchanges also issued multiple notices for regulations in various areas, such as IPO application, delisting of unqualified companies and high-frequency trading. The guideline covers nine areas, including goals for the capital market over the next five years and through 2035, strengthening regulations on the listing process, stepping up supervision of listed firms, ramping up regulations on delisting of unqualified firms, and guiding more medium- and long-term funds into the market. According to the guideline, China aims to build an overall framework for the high-quality development of the capital market in the next five years, a highly adaptable, competitive, and inclusive capital market by 2035, and a high-quality capital market matching that of a financial powerhouse by the middle of this century.
The guideline comes as China prioritizes becoming a global financial powerhouse. In October 2023, the top-level Central Financial Work Conference called for accelerating the building of a nation with a strong financial sector. This year's Government Work Report also stated that the underlying stability of China's capital market should be enhanced, sending a strong signal of China's commitment to building itself into a financial powerhouse. This is only the third guideline – often referred to as “the State Council's Nine-Point Guideline” – released by the State Council specifically for the development of the capital market. The previous two guidelines were issued in 2004 and 2014. Among the highlights of the new guideline is a focus on tackling challenges, especially prominent issues in institutional mechanisms, supervision and law enforcement, and other areas that have been exposed by the fluctuations in the stock market since August, Wu Qing, Chairman of the China Securities Regulatory Commission (CSRC), said.
Also on April 12, the Shanghai and Shenzhen stock exchanges released notices on rules for stock issuance and listing reviews. Along with the Hong Kong Stock Exchange, the two mainland bourses also jointly announced changes to the information disclosure mechanism for trading through the Stock Connect programs. Chinese stocks have seen fluctuations since the beginning of this year, but have improved since February, with the Shanghai index gaining about 12% between February 1 and April 12.
The new guidelines “will boost investors’ sentiment to some extent,” said Dai Ming, Fund Manager at Huichen Asset Management in Shanghai. “But those are guidelines, and what we’ll need to see going forward is how the securities regulator will implement these changes. From an investor’s perspective, restricting the scale of fundraising, namely new share sales, and ramping up the delisting of unqualified listed companies is what we want to see most.” New delisting rules issued by the China Securities Regulatory Commission (CSRC) will see companies guilty of accounting frauds and inadequate internal controls kicked out, the Global Times and the South China Morning Post report.
