Wu Qing: Strengthen Market Stabilization Mechanisms and Purify Capital Market Ecology

Securities Times Two Sessions Reporting Team

A stable and healthy development of the capital market relies on strong, orderly, and effective regulation. Recently, Wu Qing, Chair of the China Securities Regulatory Commission (CSRC), stated at the Fourth Session of the 14th National People’s Congress during the economic-themed press conference that the CSRC will continue to focus on risk prevention, strengthened regulation, and promoting high-quality development. They will better coordinate development and security, adhere to strict legal enforcement, consolidate fundamentals, and strive to enhance the trust and confidence of investors and all market participants.

National People’s Congress (NPC) delegate and Peking University Bo Ya Distinguished Professor Tian Xuan said that strengthened regulation is closely tied to the demand for high-quality development of the capital market. From building market stability mechanisms, to consolidating and improving comprehensive measures against financial fraud, and to strengthening industry and institutional responsibilities, a series of measures aim to optimize the capital market ecosystem, create a fair, transparent, and just trading environment, and safeguard the reform of the capital market.

Strengthening Market Stability Mechanisms

In recent years, faced with complex and severe situations of intertwined domestic and international risks, and overlapping conflicts of old and new issues, the capital market has prioritized stability. Significant breakthroughs have been made in constructing a characteristic stability mechanism and attracting long-term funds into the market, continuously consolidating the market recovery and positive trend.

Regarding the stability goals for this year, Wu Qing introduced that the CSRC will comprehensively enhance market risk monitoring, pay close attention to cross-market, cross-period, cross-border risk transmission, and strengthen strategic reserve and stability mechanisms. They will further improve the long-term funds entry mechanism, prepare and utilize tools effectively, and fully safeguard the stable operation of the market.

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 market fluctuations to a “ballast stone” in daily market operations, playing a greater role in guiding market expectations and stabilizing trading sentiment. Alongside this, the operation mechanism of the central bank’s swap facilitation tools is being optimized in tandem, forming a complementary function that together strengthens the stable foundation of the capital market.

“Construction of the stability mechanism is expected to unfold across multiple dimensions,” said Li Qiuso, Chief Strategy Analyst at China International Capital Corporation (CICC). Promoting long-term funds into the market is a key part, 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” for the capital market. Strengthening regulatory tools and improving risk hedging instruments will also help prevent market risks.

Meanwhile, efforts to continuously improve dividend and buyback systems, investor protection mechanisms, and enhance returns for listed companies will fundamentally strengthen market stability.

Many NPC and CPPCC representatives have also proposed removing barriers to long-term funds entering the market to increase their allocation willingness and stability. Zhang Qiaoliang, Partner and Head of 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 shareholding. 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, and supporting their deep participation in corporate governance.

Breaking the “Ecosystem” of Financial Fraud

Financial fraud is a “cancer” eroding the foundation of the capital market. Under the comprehensive system of punishment and prevention, by 2025, 16 listed companies were delisted due to serious fraud, far exceeding previous years. The courts nationwide accepted 25,600 cases of financial fraud disputes, a 67.2% increase year-on-year, and concluded 23,800 cases, up 58.1%.

“We will further strengthen market discipline and take multiple measures to improve the effectiveness of punishment and prevention,” Wu Qing said. On one hand, efforts will be made to reinforce governance and prevention, including introducing regulations on listed company supervision, strengthening supervision of sponsors and underwriters, and accelerating the development of fraud detection centers and third-party monitoring and early warning mechanisms. On the other hand, severe punishment for fraud will be intensified to deter misconduct, including strict enforcement of delisting requirements for fraudulent companies and resolutely eliminating “bad apples,” to break the financial fraud “ecosystem.”

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

Regarding investor compensation, the Nanjing Intermediate Court tried the third nationwide case of securities false statements involving a representative lawsuit, ruling that Jintongling Company must compensate 77 million investors for 770 million yuan of losses. The Shenzhen Intermediate Court is processing cases involving Meishang Ecology, and the Shenyang Intermediate Court is handling the Jinzhou Port case, with steady progress.

Zhou Lunjun, Deputy Chief 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 feathers into a coat” effect of special representative lawsuits, using large civil compensation to lawfully increase the costs of violations and create strong deterrence.

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 institutions and promote differentiated development among small- and medium-sized firms. For public funds, supervision and guidance will ensure they adhere to long-term and professional principles. For private funds, the “1+N+X” regulatory framework will be improved, including rules on access, fundraising, custody, and disclosure, with strict crackdowns on illegal fundraising and misappropriation.

“In the context of serving technological innovation, new requirements are also being put forward for the securities industry,” said Yang Jingdong, Executive Committee Member of Ping An Securities. Intermediary institutions must fulfill their gatekeeper responsibilities, be accountable, and enhance compliance awareness and professional quality to create a fair and orderly development environment. Additionally, improving market pricing efficiency will help high-quality enterprises with core competitiveness and genuine growth to obtain reasonable valuations. Investment banks should shift from traditional financing services to value discovery, value cultivation, and value empowerment.

Market expectations are that the linkage between public funds and investors will continue to strengthen, with faster rollout of products and risk management tools suitable for long-term investment. While enhancing private fund supervision, regulators are expected 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 new productive forces.

“This aligns with the government work report’s call to ‘expand exit channels for private equity and venture capital funds, and increase the proportion of direct and equity financing,’” said Zhang Yichen, Chairman and CEO of CITIC Capital and a CPPCC member. Venture capital exits are not limited to IPOs; mergers and acquisitions should also be key exit channels. He noted that private equity funds with over 10 trillion yuan in assets are entering an exit cycle, holding many high-quality targets, including niche leaders. M&A funds can support listed companies’ acquisitions and expansion, as well as help solve exit difficulties.

Zhang Yichen recommended further clarifying and encouraging M&A funds holding valuable industry resources to collaborate with upstream and downstream listed companies for mergers and reorganizations. 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.