New CSRC chairman signals crackdown

SHANGHAI - In his first public speech since being named as China's top securities regulator, Guo Shuqing said on Thursday that supervision of the country's securities market will focus on cracking down on insider trading.

The comment by the new chairman of the China Securities Regulatory Commission (CSRC) was interpreted by industry experts as having set the tone for the watchdog's enforcement efforts.

"Here we make a solemn declaration: the CSRC has zero tolerance for insider trading and crimes in the securities and futures markets," said Guo at the 9th Forum on Financing for Small and Medium-sized Enterprises in Shenzhen.

"We will resolutely crack down on every securities crime we discover."

Liu Guanwu, an IPO analyst with the Beijing-based consultancy Analysys International, said Guo's speech marked a change in the regulatory focus of the CSRC.

"If the main mission of the former CSRC chairman was to give the securities market more tiers and functions, the new chairman has set a goal of ensuring that it will function more efficiently and smoothly," said Liu.

Many investors and observers consider investor protection a crucial issue for China. They believe that regulators must address the issue to allow the country's capital market to flourish.

Last month, the CSRC asked public companies to formulate more complete and stable profit-sharing plans to pay dividends to investors.

Li Mingliang, an analyst with Haitong Securities Co Ltd, said insider trading has hurt the interests of retail investors for decades.

In 2007, Chen Rongsheng, the former chairman of Shanghai Prosolar Resources Development Co Ltd, raked in more than 19 billion yuan ($3 billion) through insider trading of his company's stocks. He was later sentenced to two years in jail.

"If the issue continues to exist we will see fewer and fewer people wanting to participate in the securities market." said Li."We will see tougher regulations targeting this issue in the future."

So far this year, the CSRC has investigated 82 securities market cases, with insider trading accounting for more than half, according to figures published on Tuesday. The commission has imposed fines totaling 335 million yuan and banned eight investors from the market.

Guo admitted that China's 31-year-old securities market still has many "obvious" shortcomings.

For instance, market players have a poor sense of honesty and legal compliance because of a lack of internal control mechanisms.

More importantly, he said the concept and pattern of supervision trails the market's fast development, adding that law enforcement should be more efficient, prompt and authoritative.

Guo encouraged investors to provide the commission with leads and testimony about wrongdoing to improve law enforcement.

"The legal system is generally sound in China, the problem lies in the level of enforcement," said Wang Jianhui, chief economist with Southwest Securities Co Ltd.

"Many of the scandals we have seen in the past were the result of poor law enforcement,"he said.

Yu Ran contributed to this story.

China Daily

(China Daily 12/02/2011 page14)