Regulation of Sponsors in China: Political Will, Regulators’ Desire and Market Demands

Abstract

This is the first comprehensive research on the regulatory behaviours of the China Securities Regulatory Commission (CSRC). We investigated the CSRC’s regulation of sponsors through a historical perspective to determine its general regulatory strategy and the underlying motivations. We found that the CSRC makes great efforts to achieve a subtle balance among the Party-state’s political will, its own desire as a regulator and market demands. The CSRC distinguishes the primary goal (maintaining social and market stability) from the subordinate goal (provoking market creativity) of the Party-state’s political will, and it aims to ensure that the primary goal is realised. However, it sometimes protects its regulatory domain at the expense of the subordinate one. The central government seems to entitle the CSRC with substantial discretion in deciding how to implement the proposed reform declared by the State Council. Furthermore, through implementing “hidden rules” and “assimilating self-regulation”, the CSRC has enlarged its ex ante regulatory power and built a solid interestexchanging regime with powerful financial intermediaries. The CSRC also notes that the market has needs that must be fulfilled (maybe only partly), especially when the pressure from individual investors is rapidly mounting. The reason is that some market needs are currently highly likely to overlap with the Partystate’s primary goal. Finally, we found that maintaining such a subtle balance among different goals incurs excessive cost. The CSRC’s regulation lacks basic stability and consistency, and it is merely an instrument to coordinate different goals and values while maintaining capital markets in a relatively stable status.

Keywords: China's securities regulation, CSRC, political will, market demands

JEL Classification: K22