Economic Watch: China announces zero-tolerance on financial crimes

China has toughened its stance on unlawful practices in the financial market with concrete measures in the pipeline to better protect investors.

China's financial regulators will have "zero tolerance" regarding illegal activities in the capital market, such as fraudulent securities issuance and financial fraud, according to a meeting of the financial stability and development committee under the State Council over the weekend.

The country should take multiple measures to enhance the enforcement of laws and regulations in the securities sector to maintain a healthy and stable capital market environment, said the meeting.

Analysts say the seven measures mentioned at the meeting, which include tougher punishment, improved delisting procedures and stronger law enforcement workforce, signaled better protection of investors' interests.

The regulators' increasing focus on investor protection bears strategic importance to the long-term prosperity of the country's financial market, said Lu Zhengwei, chief economist at Industrial Bank.

Investors, feeling well-protected, are further encouraged to venture into the market, which will in turn provide more funds to bolster the real economy, said Lu.

The meeting also announced plans to set up a team specifically aimed at cracking down on illegal activities in the capital market, a move viewed by analysts as a strong deterrence against financial crimes.

The team, together with strengthened law enforcement and class-action mechanisms against aggravated cases, will also serve as the foundation for a registration-based IPO system as the defense line against information disclosure-related breaches, according to Lu.

This is the fourth time in three months that cracking down on financial fraud was mentioned at the committee's meetings, illustrating China's commitment to improving the capital market.

The meetings stressed both punishment over financial misconducts and lifting institutional limitations that may dampen market vitality.

Future efforts in market reform and law enforcement will create a nurturing environment for investment and financing, said Shen Juan, an analyst with Huatai Securities.

Industry insiders have pointed out that regulators have been on the move lately to crack down on violations, and reduce financial risks.

Since 2019, the China Securities Regulatory Commission has probed 22 listed companies for financial statement fraud, and administrative penalties were imposed on 18 firms following investigations.

On a similar note, the China Banking and Insurance Regulatory Commission (CBIRC) on Saturday vowed to curb unlawful activities like shadow banking and high-leverage stock market speculation.

Special attention should be paid to regulating cross-market capital flows to prevent asset bubbles, and ensure that financial resources are going into sectors of the real economy where they are needed the most, said the CBIRC.