A draft revision to China's Securities Law was approved at the end of a six-day bimonthly session of the National People's Congress Standing Committee on December 28, 2019. The revised law, which is the fundamental law governing the capital market, will go into effect on March 1.

China's capital market is a late starter experiencing rapid growth, with a relatively strict market entry in practice over the past years. But the relatively low return on investment in the market has dampened its efficiency and attraction, and core market intermediaries are hard to innovate since the law imposed much stricter regulations on the securities industry than in other mature capital markets.

The revised law has made new arrangements for initial public offerings to gradually implement the registration-based system across the whole market. It has changed the requirement of issuing new shares from "capable of continuous profitability" to "capable of continuous operation." The public offering review committee system, whereby the China Securities Regulatory Commission (CSRC) reviewed applications and authorized stock exchanges to review applications, was abolished. The CSRC will instead be responsible for securities registration.

The revision has stricter information disclosure requirements and more concise requirements for issuing securities in compliance with registration-based reform. It also focuses on strengthening the protection of investors, introducing compensation in civil litigation and increasing penalties for illegal activities in the securities sector.

(This is an edited excerpt of an article originally published in Beijing Youth Daily on December 30, 2019)