A Study On The Legal System Of Contemporary Chinese Stock Issuance Supervision

The mechanism and regulation of the issuance of shares sets the foundation of a country’s capital markets, and is one of the decisive factors in determining China’s capital market’s development today. This paper attempts to analyze vertically the development of China’s capital markets’ regulatory development for the past20years, and utilizes historical analysis and case studies to analyze regulations on the issuance of A shares, B shares, H shares and red chip shares. This paper summarizes and analyzes the basic perspectives and special characteristics (problems) of the existing regulatory mechanism on share issuance in China, and based on this the afore-mentioned analysis; I further propose specific and practical recommendations to further improve the existing regulatory mechanism.China’s share issuance regulatory mechanism was established in the1980s reform and opening up, and can be categorized into three periods:(1) experimental period of regulation by several entities (from1980s to mid to late1990s);(2) period of centralized regulation mainly by administrative entity (from mid to late1990s to2012); and transitional period from an system of administrative approval to a legalized system (2012to now).China’s share issuance regulatory mechanism was accompanied by reforms in the system of shareholding of China’s enterprise, and had undergone further changes and developments under the director of the government. For this historical perspective, this resulted in the regulatory system developing into a typically new and transitional system which is a non-legalized regulatory system. This resulted in the centralize control of capital markets regulation, with the CSRC as the central governmental body in relation to this centralized regulatory structure. Although China’s existing centralized regulatory structure had served us well, this existing situation is in contrast with international norms whereby the regulatory system for share issuance is premised on the existence of an independent and professional regulatory body. Through the comprehensive review of the history of our nation’s share issuance regulatory system, the author found that, under the existing regulatory regime, the evaluation criteria of the regulatory body primarily derives from the policy direction of the central government, and not based on either the intrinsic market value or applicable legal consideration. The excessive control of the government resulting in the market disorder is the core reason for many of the existing problems faced by our capital markets. The author believes that revision and improvement with respect to detail aspects of a regulatory mechanism are critical. However, this may not be key to resolving the existing problems in China’s capital market regulatory system. Purely transplanting a foreign regulatory system will not work due to a lack of foundation in China’s existing environment of centralized administrative control. The wholesale copying of the system from a mature capital market and comprehensively revamping the existing regulatory and oversight mechanism is not workable as well. From the perspective of China’s unique political system as a starting point and by holistically considering the continuity of policies and traditional perspective, making adjustment on the general arrangement of share issuance regulatory mechanism, transferring the regulatory system for A share issuance from one where CSRC possesses unified power into one where securities exchanges take a major role in regulating and CSRC exercises only supervision power and regulating offshore direct share issuance (H share) by way of the exsting new reform policy and regulating offshore indirect share issuance (red chip model) by initiating exemption mechanism for offshore indirect share issuance, will fundamentally complete the reform of China’s capital market regulatory mechanism.This paper, other than the foreword, consists of four chapters. The paper’s general structure and content are as follows:First chapter:The exploration and analysis of fundamental theories behind our nation’s capital market regulatory system. By discussing, analyzing and defining several basic issues, including the definition, characteristics, elements of the model of share issuance regulatory mechanism, and regulatory mechanism, this chapter analyzes our nation’s share issuance regulatory mechanism and its elements. This chapter’s analysis forms the foundation for the argument of this entire paper.Second chapter:The historical development and characteristics of China’s share issuance regulatory system. This chapter, by utilizing an historical analysis on A share, B share, H share and offshore indirect share issuance (red chip share issuance), detailed the development of China’s regulatory environment. In summarizing, this chapter described how China’s regulatory system differs from different time periods and stages of development.Third chapter:Overall evaluation of China’s share issuance regulatory system. On the foundation of second chapter, this chapter evaluates the current regulatory system from the legal regulatory perspective and summarizes the achievements. It further generalized the intrinsic characteristic of China’s regulatory regime—a typically new, transitional and non-legalized system. Based on such intrinsic characteristic, this chapter summarized9characteristics (or issues) of China’s share issuance regulatory mechanism:(1) a highly administrative system for share issuance regulation,(2) a single layer regulatory system with CSRC as the central regulatory body;(3) lack of systematic and general arrangements for the planning of regulatory system;(4) lack of transparency on listing regulation and lack of efficiency on supervision;(5) lack of supervisionand limitation on the regulators;(6) emphasis on preemptive regulation.Chapter4:Recommendations to China’s share issuance regulatory system. These recommendations are based on the evaluation done in chapter2and chapter3, the author’s year’s practical experience, and also leverage on the experience from mature overseas regulatory system. The author proposes that the goals of reform for China’s share issuance regulatory mechanism are to have the market participants to take a major role in the process of regulating share issuance, to put in place a market-oriented and legalized share issuance regulation in China, and in the process of marketization and legalization to gradually eliminate the reliance on direct intervention and control by the government on micro activities in the market of issuance. The author further proposes ways to improve the abovementioned goals that is to reconsider regulation structure for the share issuance regulatory mechanism, to adjusting CSRC’s regulatory role and its jurisdiction regarding issuance approvals, and to implement a double-layer approving mechanism where securities exchanges exercise rights to approve for share issuance under the supervision of CSRC. CSRC should become a genuine pure regulatory body, and to punish those who are in breach of the regulations. s. At the same time, this paper proposes that regulating offshore direct share issuance (H share) by way of the exsting new reform policy and an exemption system for offshore indirect share issuance to regulate offshore indirect share issuance (red chip model).