Protecting Investors in China through Multiple Regulatory Mechanisms and Effective Enforcement

Abstract

The brisk pace of globalization coupled with China's entry to the World Trade Organization (WTO) in 2001 has heightened the international competition faced by Chinese securities market players. In turn, that increased competition has catalyzed both regulation and measured liberalization of China's securities markets. Previous company and securities laws lacked effective civil remedies for investors and the right to commence derivative actions. Because the laws were inadequate in that area, investors in China's securities markets (particularly minority investors) were susceptible to market manipulation and fraud and were often left without redress. Recent amendments to Chinese securities law and company law, which are focused on protecting investors, have improved the regulation of the securities markets. But it remains to be seen whether improved legislation will change practices, as law enforcement has been a long-standing concern in China.

This Article investigates the regulatory and enforcement issues confronting listed companies and stock exchanges in China. Part II traces the history of the current regulatory frameworks for listed companies and stock exchanges. Part III identifies flaws in the regulation of listed companies and stock exchanges caused by the China Securities Regulatory Commission's (CSRC) tight control. Part IV discusses enforcement issues affecting regulators and investors. Part V proposes reforms for regulation that provides effective investor protection.

Keywords: China, securities market regulation, investor protection

JEL Classification: K20, K22