CSRC chief urges more protection for retail investors

Protecting retail investors is at the core of protecting the capital market, Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC). said Wednesday in an article he wrote for the official Securities Times.

Xiao said it was vital to protect retail investors, as they are an integral part of China's capital market.

"It (Xiao's view) is right, and I totally agree with that. Protecting investors' rights is a fundamental issue in capital markets," Nie Riming, a senior research fellow at the Shanghai Institute of Finance and Law, told the Global Times Wednesday.

Currently, almost 90 million retail investors have opened accounts with the Shanghai and Shenzhen stock exchanges, and equity transactions of less than 500,000 yuan ($81,596) account for 60 percent of the total trading volume.

"This unique characteristic raises issues about market operation efficiency and market regulation. The need for tailored policies and regulation solutions is urgent," Xiao said in the article.

Nie said that China's current capital market structure favors companies and puts retail investors at a disadvantage. Because the majority stakeholders in companies make the decisions, retail investors cannot be properly represented and their needs are often neglected.

"Big shareholders can always find ways to protect their interests, but retail investors cannot," Nie noted.

The article said that retail investors can be misled due to a lack of sufficient information. The lack of information transparency in the market, together with retail investors' ignorance of their rights, makes them vulnerable in the capital market.

Statistics cited by Xiao in the article show that cash dividends paid by listed companies accounted for just 25.3 percent of their profits from 2001 to 2011, while the proportion is usually 40 percent in developed overseas markets.

Also, the average annualized dividend yield has been around 1 percent since 2006, indicating the equity investment returns system is under-developed. This has given rise to speculation and other risky investing activities, ultimately leading to investor losses, said Xiao.

Xiao suggested certain solutions, such as more timely disclosure of information so that retail investors can be well-informed, and developing the shareholder voting system.