Faculty & Research


Taking effect on March 1, China’s newly-amended securities law marks an important step in the country’s efforts to further liberalize its capital markets and protect investors.

Liu Yuzhen, finance professor with Peking University’s Guanghua School of Management, describes the registration-based IPO regime as a key change in the new law that will significantly alter the roles of securities regulators and various exchanges,and enhanced disclosure requirements and penalties effectively increase the costs of wrongdoings.

Under China’s previous IPO system, new shares are subject to approval from the China Securities Regulatory Commission ( CSRC ) before being listed. The revised law has changed the requirement of issuing new shares from "capable of continuous profitability" to "capable of continuous operation," authorized stock exchanges to review public offering applications.

According to Liu, it will be easier for medium- and small-sized businesses to finance directly, and their listing will squeeze the liquidity of small cap stocks, some of which were overvalued in the past.

The revision also sets a general framework to encourage small and individual investors to take the initiative in class action lawsuits and introduces compensation in civil litigations in a bid to strengthen their protection.

It also sets down stricter rules for delisting as a company doing so will potentially harm the benefits of investors, especially small and individual ones.

“In addition to laws and regulations, we should also enhance education of investors so that they have more financial knowledge and know how to be reasonable and responsible in their investments.” Liu said.

Liu’s research reveals that small and individual investors are prone to a string of problematic acts, including excessive trading, inadequate portfolio diversity, speculation and bad timing.

“These issues mean that our education efforts should especially target A-share investors in a precise and comprehensive manner in order to rectify their wrongful acts, reduce potential losses and enhance their confidence in the capital market,” Liu said, adding that such education will also play a role in regulating market order and boost the capital market’s long-term development.

Meanwhile, Liu calls for the country’s asset management providers to offer more guidance for investors instead of simply focusing on their own sale figures, including mapping out customized online education plans or face-to-face consultation sessions for clients that take into account their different behaviors, stages of life, asset volumes and financial knowledge.

According to Liu, an evaluation mechanism should be set up to scientifically and systematically track and gauge how effective investor education so that improvements are possible.

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