Commentary: IPO fraud delisting shows toughening of stock market regulation

The delisting of public company Dandong Xintai Electric over IPO fraud has demonstrated the securities watchdog's determination to toughen regulation and protect investors' interests.

The Liaoning-based electrical equipment maker has been convicted of fabricating financial data in its IPO application and will be ousted from the ChiNext Board at the Shenzhen Stock Exchange, the China Securities Regulatory Commission (CSRC) said on Friday.

The company, its board chairman and brokerage will also be fined heavily. Dandong Xintai will become the first company delisted over IPO fraud.

IPO approval is the gateway to the stock market and application documents must be authentic and accurate.

The CSRC will supervise the stock market with increasingly rigorous measures and clamp down on law or regulation violations with zero tolerance.

China introduced a delisting scheme in 1993. Previously, delistings mainly resulted from bad financial performance, rather than regulatory violations.

It is very difficult to investigate and punish illegal activities as stock market cases usually involve great and complicated interests. Violators were typically fined so slightly that they could not even feel the pain.

The removal of Dandong Xintai indicates that the CSRC is waging a war against any law or regulation breaches and expelling unqualified companies from the market.

More delistings can be reasonably expected.

Many deem China's stock market a gambling den where companies make fortunes overnight just by being listed, not a platform for investment and corporate financing, far from what policy makers want.

Persistent volatility in the market and especially the wild swings last summer were partly attributed to the absence of stringent supervision and ironhanded law enforcement.

Without severe and deterrent punishment in accordance with laws and regulations, promises of a better stock market will be no more than a bad cheque.

The intensified supervision is aimed at creating an open, fair and just environment, where ordinary investors can benefit from the quality growth of public companies and their lawful interests will be well safeguarded.

A healthy and sustainable stock market will serve the financing needs of qualified companies and provide ordinary investors with opportunities to preserve and increase their assets. Endi