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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. Introduction 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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