The mainland is set to pass its first Securities Law this year, after more than six years of debate and revision, having resolved bitter disputes over allocation of power and establishment of a powerful regulator and watchdog over the industry. The new law will give wide-ranging powers to the China Securities Regulatory Commission (CSRC) as the sole market regulator for stocks, all kinds of bonds, futures and mutual funds. The draft of the law - outlined in 12 chapters and 214 articles - went to the Standing Committee of the National People's Congress (NPC) that began a nine-day session on October 26. It is due to hold two more sessions this month and next. 'The NPC could pass it this year,' said Zhou Daojiong, former chairman of the CSRC and a member of the NPC's economy and finance committee. 'We will try to pass it in December, which would be early. It will be passed no later than the first quarter of next year. 'The law will greatly benefit the development of China's securities market. Investors, domestic and foreign, hope it will be passed early.' The main provision of the law will be to give wide powers to the CSRC, which include: Supervising the issue, trade, trust and clearing of stocks, convertible bonds and mutual funds. Approving the listing of corporate bonds and supervising trading of listed state debt and corporate bonds. Managing securities and futures exchanges, and their senior officials. Supervising circulation of information on securities and futures, and managing the release of statistics and information on the industry. The law also will set out rules to protect the interests of investors and limit financial risks, and will require proper disclosure of information by listed companies. There will be punishments for insider trading, stock manipulation, fake buying and selling, and other irregularities. The law will not grant state companies explicit priority access to the stock market, even though this has been government policy since the markets opened. Nor will it permit trading of stock outside the exchanges or on credit, although these may be allowed in the future. Drafting of the Securities Law began in July 1992. Its delays have less to do with disputes over content and more to do with jurisdiction, or which departments of the government - local or central - should have power over the industry. Local and provincial governments, as well as ministries in Beijing, for years have jousted to gain as large a jurisdictional share as possible over an industry they consider a money-spinner, for the fees they can collect or taxes they can levy from trading, or from having a say over which companies can list. Passing the law has become possible only because of a gradual concentration of power in the CSRC, a body which the drafters want to be similar to regulators in the United States or Hong Kong. Early last year, the State Council merged its securities commission with the CSRC and appointed Zhou Zhengqing, head of the commission, as head of the CSRC, thereby removing one source of conflict. Also last year, the two stock exchanges were put under the direct control of the CSRC, removing the authority of the Shanghai and Shenzhen governments over them. Early this year, the People's Bank of China gave the CSRC power to approve the leading officials of brokerages. The securities industry is one of the fastest-growing in the mainland. By mid-October, there were 827 listed companies, with a market capitalisation of 2.04 trillion yuan. About 37 million investors and 2,400 companies were doing securities business. Two factors are attributed to breaking the deadlock over the law. One was the elevation of Zhu Rongji to the premiership in March. An economic specialist, Mr Zhu understands better than other mainland leaders how securities markets work in other countries and is more aware of the need for stronger supervision and better regulation. He has told mainland legislators that a financial meltdown, sudden and unpredictable, is a bigger risk to the Communist Party's rule than unemployment, the pace of which can be planned and controlled. The second factor was the regional financial crisis, which led to the collapse of governments in Thailand, Indonesia and South Korea. That brought home to even the most economically illiterate mainland cadres the social and political risks of a market collapse and financial crisis. The mainland's markets remain as speculative and erratic - and prone to insider trading and manipulation - as those of Southeast Asia. Investors trade on rumour and guesswork about government policy as much as on company fundamentals. The fear of a market collapse helped concentrate the mind of officials and legislators on the need to reach consensus. Professor Li Yining, one of the fathers of the mainland's stock market and vice-chairman of the NPC committee drawing up the law, said it would help make a more standardised and orderly market. 'This law is the best news for the stock market,' he said.
