People involved in illegal activities on the capital market in the 2018 have reason to fear, as China's leading securities supervisory body takes a stronger stance on market irregularities.
The China Securities Regulatory Commission (CSRC) - a ministerial-level public institution directly under the State Council that performs a unified regulatory function and, with the authority of the State Council, ensures a legal capital market operation - rejected six of Tuesday's seven initial public offering (IPO) applications, making it the largest single day of rejections this year. The CSRC, in a statement, said that “the IPO review will become increasingly stringent in 2018 and the requirement for the authenticity of corporate finance and corporate compliance has been raised to an unprecedented level.
Tight control of the country's public quotations was the latest move following last year's tightened market control and severe illegal trade sanctions to prevent risks and protect investor interests.
To reduce market irregularities, last October the CSRC set up a new committee to examine applications for initial public offer. The committee has the right to decide whether a company is qualified to become public in China. It also regulates fraud.
China's approval system based on the IPO review has long been criticized by investors as it appears to have given auditors too much power while suppressing the market function. To verify the powers of the auditors, the CSRC has also established a committee that oversees IPO applications, refinancing, mergers and acquisitions.
"No forbidden zones, full coverage, zero tolerance and responsibility for life" will be the duties of the oversight committee, said CSRC chairman Liu Shiyu.
Since the beginning of the year, the IPO review committee approval rate is only 44,44%, significantly lower than the 81% recorded in the first three quarters of 2017.
According to Wind Info, a provider of financial information services, Over the past three years, the rate was higher than 90%. Among the reasons for the rejection: abnormal financial conditions, inability to generate sustainable profits and questionable authenticity of the application documents.
Aside from the tight control of public lists, the CSRC has also created severe punishments to discourage market violations and make the capital market function properly. The body decided to reach a record level of 224 administrative sanctions in the 2017, with the combined total of fines rising by 74,74%, to a historical high of 7,48 billion yuan (1,14 billion US dollars)
Fines have been distributed for various violations, including problems of information disclosure and market manipulation. The efforts have been repaid. The stock market in the 2017 was much more stable than a year earlier.
Zhang Shenfeng, vice president of CSRC, said last week that China will continue to strengthen oversight in the securities market in the new year to keep it fair, open and impartial. "The regulator will continue to prevent violations of the laws."
The VP also said the CSRC will conduct research and establish an investor compensation fund to better protect investor interests and prioritize oversight innovation, including better on-site oversight and the use of big data to improve efficiency. “China will make the capital market more functional to the real economy, Zhang said.