Creating a capital market that emphasizes wealth sharing requires persistent and unwavering efforts over timeIn recent years, the Chinese capital market has increasingly emerged as a critical arena for investment allocation, drawing substantial attention from investors and regulators alikeThe actions taken to regulate the behavior of intermediary institutions reflect the government’s significant focus on the capital market, demonstrating their capacity to monitor and steer market trends effectivelyThis proactive regulatory approach is indicative of a broader strategy that anticipates challenges before they arise.

Undoubtedly, financing stands out as an indispensable function of any capital marketVarious local governments have been instrumental in promoting the entry of local state-owned enterprises (SOEs) and businesses into the capital market through Initial Public Offerings (IPOs). Furthermore, they have smartly capitalized on existing public companies, utilizing mergers and acquisitions (M&A) to facilitate local enterprises’ access to capital

Techniques like private placements, bond issuances, IPOs, and Real Estate Investment Trusts (REITs) have become viable avenues for raising funds, providing local firms with necessary capital critical for economic growth.

Nonetheless, exploiting the capital market solely for financing can pose threats to the quality of listed companies, investor rights protection, and the overall health and stability of the capital marketWhen pricing tools and mechanisms become misaligned with the principles of investment quality and investor safety, it could lead to adverse outcomes for both investors and the market.

Given these issues, there is a pressing need to solidify the role of intermediary institutions as gatekeepers within the capital marketEstablishing an environment that promotes a market-oriented and rule-of-law approach in business operations is crucialThe enthusiastic engagement of local governments in these practices often engenders a milieu conducive to collusion among brokerages, law firms, and accounting firms, underlining the necessity of vigilance in regulatory oversight to safeguard the market’s integrity.

As we alert local governments and intermediary institutions to potential risks, it is equally important to refine the institutional framework governing China’s capital markets

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Moving away from a one-sided financing dependence, the objective is to cultivate a capital market characterized by direct investment and wealth-sharing principlesA critical component of this endeavor is enhancing the standards that underpin these markets, fostering an ecosystem where capital flows efficiently while ensuring equitable protection of investor rights.

One of the momentous reasons calling for enhancements in the investment capabilities of today’s Chinese capital market lies in the inherent information asymmetriesThe exchange often fails to facilitate truly equal competition, leaving many investors at a disadvantageThe tools available to protect legal rights are often limited, and the processes for claiming rights can be cumbersome and costly, minimizing the prospects for loss recoveryMoreover, with financial fraud, misleading public listings, and insider trading bearing relatively low punitive costs, the market’s flaws are further accentuated.

Additionally, differing risk management capabilities among various investor categories is a prevailing concern

Institutional investors often have access to a wide range of risk management tools compared to individual investors, who frequently find themselves devoid of necessary risk mitigation and management optionsThis imbalance diminishes the ability of individual investors to navigate the market effectively.

This structure emphasizes the financing functions of China’s capital market while sidelining its investment functions, leading to a precarious scenario where safeguarding investors' legitimate rights becomes difficult in practiceIt is vital to enhance the self-regulatory capabilities of the market, ensuring that all investors have access to straightforward, cost-effective, and equitable tools for competitionEstablishing an environment where fair competition thrives, and all parties engage on level ground is imperative.

Addressing this requires lowering the barriers for class action lawsuits, improving evidence collection processes, and enhancing dispute resolution systems

Providing investors the mechanisms for collective legal action and sufficient evidence presentation not only safeguards their rights but also ensures that any infringement incurs severe penaltiesAdequate compensation for affected stakeholders reinforces the strength of investor protection.

As the protection of legal rights becomes more immediate and comprehensive, it builds a safety net for both investors and listed companiesThis, in turn, fosters stable expectations and allows patient capital to flourish alongside high-quality, reliable companiesA thriving capital market hinges upon the existence of high-quality listed firms, which can only vie for essential resources in a competitive marketplaceFurthermore, only in a fair market with equivalent opportunities can these firms be subject to proper valuation.

To genuinely promote the healthy and stable development of the capital market, it is crucial to designate that any administrative fines levied within the market must be exclusively earmarked for compensating those harmed

Given that the compensation capacity varies significantly among infringers, substantial losses can result from those who are less able to pay damagesThus, it is imperative to stipulate that administrative penalties by regulatory bodies, such as the China Securities Regulatory Commission (CSRC), are allocated solely for the compensation of infringed parties, guaranteeing reliable and sufficient restitution for all harmed investors.

The pursuit of stability and health in the capital market calls for a robust framework that establishes a fair and just trading environmentMechanisms must exist to assure lawful practices and vehemently punish illegal activitiesOnly by steering the direction of fairness and justice within capital markets while guarding the system’s intrinsic self-discipline can we ensure that investment and financing functions exist in harmonious oppositionUltimately, this will enable the capital market to return to its foundational purpose of wealth sharing, fulfilling its role in a balanced economic landscape.