4 H.K. J. Legal Stud. 1 (2010)

handle is hein.journals/hkjls4 and id is 1 raw text is: Bridging the Gap
Factors Affecting the Enforcement of Securities
Regulation in China
Ken Chow
In this article, the author examines the rapidly developing securities
regulatory regime in China. China's securities regime suffers from various
deficiencies that have resulted in a large number of cases involving
misconduct of market participants and company managers. This article
discusses the legal, political, and institutional barriers hindering the
development of a functioning securities regime in China. The author suggests
that the ultimate key to securities regulation reform, and to ensure the
effective enforcement of such regulations in China, is the reform of China's
political system.
The enforcement of securities regulation in China is a complex and
contentious issue. Due to the interdependency between corporate
governance and financial regulation, the efficacy of securities regulation
relies on more than just the establishment of a legal and regulatory
framework. Controversies over state ownership and lack of management
accountability in Chinese-listed companies along with the prevalence of
political agenda setting by both local and national governments have led to a
convoluted agency problem which permeates throughout much of the
corporate governance regime in China. In addition, significant legal and
regulatory issues compromise the integrity of China's financial sector. For
instance, inefficiencies found in the banking sector, particularly in the area of
non-performing loans (NPLs), along with corruption and transparency
problems associated in China's accounting and asset valuation policies and
brokerage industry, play an alarmingly significant role in the enforcement of
securities regulation. The essential problem behind the lack of enforcement
of securities regulation, like other corporate governance issues in the PRC,
stems from the government's inability, or perhaps, unwillingness to reform
state-owned enterprises (SOEs) into individually accountable companies
subject to market discipline. This linkage is perhaps best exemplified in the
basic share structure of Chinese-listed companies, where the State maintains
its control of a publicly listed company as its majority shareholder by holding
non-tradable A shares. For decades, unresolved contradictions like this have
existed between China's rapid economic reform policies and the country's
socialist political aspirations. As such, a host of political, legal and institutional
constraints affect the enforcement of securities regulation.
Perhaps one of the most central premises in this analysis is China's inability
to develop an efficient capital market where the main principles behind the
2005 PRC Securities Law are effectively implemented. Article 1 of the PRC
Securities Law states that its legislative purpose is to:

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