Strengthen the stability mechanism and purify the capital market ecosystem

Securities Times Two Sessions Reporting Team

A stable and healthy development of the capital market relies on strong, orderly, and effective regulation. Wu Qing, Chair of the China Securities Regulatory Commission, recently stated at the Fourth Session of the 14th National People’s Congress during the economic-themed press conference that the focus will continue to be on risk prevention, strengthened regulation, and promoting high-quality development. The goal is to better coordinate development and security, adhere to strict legal standards, consolidate fundamentals, and enhance investor and market confidence.

National People’s Congress delegate and Peking University honorary professor Tian Xuan said that strengthened regulation aligns with the demand for high-quality development of the capital market. From building market stability mechanisms, to consolidating and improving comprehensive measures against financial fraud, to strengthening industry institution responsibilities and regulating new types of business, all these measures aim to optimize the market ecosystem, create a fair, transparent, and just trading environment, and safeguard market reform.

Strengthening Market Stability Mechanisms

In recent years, faced with complex and severe situations of intertwined internal and external risks, and overlapping conflicts, the capital market has prioritized stability. Significant breakthroughs have been made in constructing a market stability mechanism with Chinese characteristics and in attracting long-term funds into the market, continuously reinforcing the market’s recovery and positive trend.

Regarding the stability goals for this year, Wu Qing introduced that efforts will be made to comprehensively enhance market risk monitoring, with particular attention to cross-market, cross-period, cross-border risk transmission. The strategic reserve of stability forces and mechanisms will be consolidated and strengthened, and the mechanism for long-term funds entering the market will be further improved. Tools will be prepared and utilized to ensure the market operates steadily.

Tian Xuan stated that China’s market stability mechanism has officially entered a normalized operation phase. The pilot “stabilization fund” completed in 2025 will be fully implemented in 2026, transforming from an emergency “firefighter” during abnormal fluctuations to a “ballast stone” in daily markets, playing a greater role in guiding market expectations and stabilizing trading sentiment. In tandem, the operation mechanism of the central bank’s swap facilitation tools is being optimized, forming a complementary function with the stability mechanism to strengthen the foundation of market stability.

“Construction of the stability mechanism is expected to unfold across multiple dimensions,” said Li Qiusuo, Chief Strategy Analyst at China International Capital Corporation. Promoting long-term funds into the market is key, including pension funds, insurance funds, and sovereign wealth funds, which can serve as long-term drivers for steady market growth, help smooth short-term volatility, and act as “stabilizers” and “ballast stones.” Strengthening regulatory tools, improving risk hedging instruments, and continuously refining dividend and buyback systems, as well as investor protection mechanisms, will fundamentally enhance market stability.

Many NPC and CPPCC delegates also proposed removing barriers to long-term funds entering the market to increase their willingness and stability in asset allocation. Zhang Qiaoliang, Partner and Chief Lawyer at Shandong Kangqiao Law Firm, suggested further relaxing restrictions on equity investment ratios and concentration limits for insurance, pension, and wealth management funds, supporting long-term strategic holdings. Optimizing accounting measurement and risk regulation rules to reduce the impact of short-term stock price fluctuations on long-term funds’ financial indicators, solvency, and regulatory ratings. Standardizing the treatment of various long-term institutional investors in corporate governance, private placements, and voting rights, supporting their deep participation in corporate governance.

Breaking the Financial Fraud “Ecosystem”

Financial fraud is a “malignant tumor” eroding the foundation of the capital market. Under the comprehensive system of punishment and prevention, by 2025, 16 listed companies involved in serious fraud will be delisted, far exceeding previous years. Courts nationwide accepted 25,600 financial fraud disputes, a 67.2% increase, and concluded 23,800 cases, up 58.1%.

“Market discipline will be further enforced, and multiple measures will be taken to improve the effectiveness of punishment and prevention,” Wu Qing said. On one hand, governance will be strengthened to enhance prevention, including implementing regulations on listed company supervision, strengthening supervision of sponsors, accelerating the development of fraud detection centers, and establishing third-party monitoring and early warning mechanisms. On the other hand, severe punishment of fraud will serve as a deterrent, with increased efforts to investigate and punish financial fraud, strict enforcement of delisting requirements for fraudulent companies, and resolute removal of “bad apples” to break the financial fraud ecosystem.

CPPCC member and China Tai Securities General Manager Feng Yidong suggested increasing penalties for major shareholders and responsible persons involved in financial fraud. For companies involved in fraud, accountability should be traced back to responsible individuals, with harsher penalties for controlling shareholders, actual controllers, directors, supervisors, and senior management, especially in cases with severe social impact, including punitive fines and criminal charges. Strengthening intermediary institutions’ responsibilities and improving investor compensation mechanisms are also necessary. Additionally, responsibility should be clearly distinguished, and involved listed companies should be handled prudently to prevent innocent losses to small investors.

Regarding investor compensation, the Nanjing Intermediate Court handled the third nationwide securities false statement representative lawsuit, ruling in favor of Jin Tongling Company to compensate 77,000 investors for 770 million yuan in losses. Cases involving Meishang Ecology in Shenzhen and Jinzhou Port in Shenyang are progressing steadily.

Zhou Lunjun, Deputy Head of the Civil Trial Second Division of the Supreme People’s Court, pointed out that these cases better demonstrate the “gathering sand into a tower, gathering armpits into a coat” effect of special representative lawsuits, using large civil compensation to lawfully increase the cost of violations and create a strong deterrent.

Promoting Industry Norms

The healthy development of the capital market requires the joint efforts of all market participants, especially industry institutions. Wu Qing emphasized guiding industry institutions to focus on their core businesses and develop in a regulated manner. For securities firms, support will be given to strengthen leading firms and promote differentiated development among small and medium-sized firms. For public funds, supervision and guidance will encourage long-term, professional investment. For private funds, the “1+N+X” system will be improved, with sound rules for entry, fundraising, custody, and disclosure, and strict crackdowns on illegal fundraising and misappropriation.

“Under the broader context of supporting technological innovation, new requirements are also being placed on the securities industry,” said Yang Jingdong, Executive Committee Member of Ping An Securities. Intermediaries must fulfill their gatekeeper responsibilities, act responsibly, and enhance compliance awareness and professional quality to create a fair and orderly development environment. Market pricing efficiency should also be improved to provide reasonable valuations for high-quality, core-competitiveness, and genuinely growing enterprises. Investment banks need to shift from traditional financing services to value discovery, cultivation, and empowerment.

It is widely expected that the interests of public funds and investors will continue to be closely linked, with faster development of long-term investment products and risk management tools. While enhancing private fund regulation, authorities are likely to strongly support early-stage, small-scale, long-term, and hard-tech private equity and venture capital funds, better leveraging their role in nurturing patient capital and serving the development of new productive forces.

“This aligns with the government work report’s call to expand exit channels for private equity and venture capital funds and to increase the proportion of direct and equity financing,” said Zhang Yichen, Chairman and CEO of CITIC Capital and member of the CPPCC. Venture capital exits are not limited to IPOs; mergers and acquisitions should also be important exit channels. Currently, private equity funds with over 10 trillion yuan in assets are entering an exit cycle, holding many high-quality targets in niche fields and hidden champions. M&A funds can support listed companies’ acquisitions and expansion, optimize industrial layouts, and effectively address exit difficulties.

Zhang Yichen recommended further clarifying and encouraging M&A funds holding valuable industrial resources to collaborate with upstream and downstream listed companies for mergers and restructuring. Additionally, tools like S-funds and continuation funds should be further improved and promoted to provide compliant and smooth exit channels for matured M&A funds, ensuring that exits do not hinder long-term industrial integration plans of listed companies.