China Issues Stringent Rules to Tighten Listing Controls and Tackle Financial Fraud

China’s stock regulator issued two sets of rules Friday that will tighten listing requirements, crack down on financial fraud by listed companies, encourage listed firms to increase dividend payouts and buy back shares.

The rules came shortly after Wu Qing, chairman of China Securities Regulatory Commission (CSRC), promised to strictly hold the IPO threshold and make every effort to block fraudulent companies from the capital market, at a press conference during the national legislative meetings known as the Two Sessions last week.

One document introduces eight stringent policy measures aimed at elevating the declaration quality of listed companies, insisting on accurate information disclosure, curbing excessive fundraising, and enforcing strict legal accountability on financial fraud and misinformation.

The guidelines underline the crucial role of intermediary institutions as gatekeepers, call for continuous on-site supervision and stress the importance of proactive auditing by exchanges to prevent financial fraud and ensure compliance with issuance standards.

Some of the latest measures are enhancements of existing practices and some are new policies, CSRC official Yan Bojin told a press conference Friday.

The regulator will conduct regular on-site inspections of intermediaries that help companies with IPOs and, once fraud is found, will make all related parties accountable, Yan said.

The other document contains 18 policy measures aimed at raising investors’ confidence by enhancing market integrity through rigorous supervision of information disclosure, stringent punishment for financial fraud and improved mechanisms for managing market value and investor returns.

The regulator will crack down on practices such as long-term systematic fraud and collaboration with third parties on fraud, as well as the inflating of revenue and profits in financial reports through fake transactions, said Guo Ruiming, an official at the CSRC.

China’s stock market got off to a bumpy start in 2024 after the benchmark CSI 300 Index, which tracks the performance of the top 300 companies listed on the Shanghai and Shenzhen exchanges, fell 11.4% in 2023 and hit a five-year low last month.