Opinion | Systemic overhaul of securities law can liberalise China's capital markets
Hu Shuli says comprehensive revision, part of the broader reform agenda,should improve market mechanisms and reduce regulation
China's securities law is to undergo a comprehensive revision - almost a decade after the last major overhaul. Public consultation is due to start in the first half of next year, following recent comments from officials, scholars and market participants.
The first national law of its kind, it was introduced in 1999 - almost a decade after the establishment of China's first stock exchange, the Shanghai Stock Exchange in 1990 - and sought to create greater uniformity in the rapidly expanding securities market.
The law, which protects investor rights in mainland shares and bonds, has undergone many amendments - both major and minor - over the years. Yet too much government regulation, or "financial repression", remains.
The law certainly needs a systematic overhaul. As the government streamlines administration, delegates powers and deepens reform, the changes must also help redefine the functions of government and the market.
Calls to amend the law have been heard for some time. Opinions are divided over changes, in particular whether securities regulators should move from an approval-based system of initial public offerings, which can involve rounds of reviews lasting many years before approval is given, to a registration-based system - widely adopted in developed economies - where companies and investors set the scale, valuation and timing of new share offerings.
The problem with the current system is that the mainland's capital markets have developed much more slowly than the economy and have thus impeded the nation's development. This is why it is now vital to solve the core problems. In essence, the new amendments will allow for greater market autonomy and improved market mechanisms.
The relationship between the regulator and the market also demands attention. Regulatory powers can be a positive force, protecting the market; unfortunately, they can also be used as rent-seeking tools. So, we must consider how such powers are distributed, and provide adequate checks and balances. Registration rights will continue to be a key issue and this must be handled with care, given the excessive concentration of power in the China Securities Regulatory Commission at present.