NGOs called to advocate for investors

An immature regulatory framework and limited awareness of the legal rights afforded investors are hindering efforts to protect participants in China's capital market, one of the country's top financial authorities said Monday at an event in Shanghai.

Wu Xiaoling, the former deputy governor of China's central bank and the current vice chairperson of the Financial and Economic Affairs Committee of the National People's Congress, called on the government to strengthen financial laws aimed at safeguarding investors' rights and interests. Wu encouraged the creation of non-governmental organizations (NGOs) designed to promote investors rights and stressed the importance of educating retail investors.

Wu's remarks were delivered at the inauguration of the CEIBS Lujiazui Financial Investors Protection Fund, an organization designed to educate and protect investors while supporting research into industry best practices.

Wu will serve as one of the fund's nine committee members. The committee also will include Jiao Jinpu, the director of the central bank's Financial Consumer Protection Bureau.

China's investor protection mechanisms have come under mounting scrutiny since the onset of the global financial crisis in 2008. More recently, a series of accounting scandals involving several publicly-traded companies have also drawn attention to the risks facing China's individual retail investors.

Authorities have made several high-profile efforts in recent months to clamp down on fraud and malfeasance at the country's stock exchanges. According to iFind, a financial information provider, the China Securities Regulatory Commission (CSRC) had criticized, fined or otherwise punished 76 listed companies in 2012 for breaches of securities regulations, up from 27 firms in 2010.

The CSRC has also taken aim at brokerages. In May, the commission announced it would fine Ping An Securities 76.65 million yuan ($12.47 million) for failing to conduct adequate due diligence when it backed the listing of Wanfu Biotechnology (Hunan) Agricultural Development Co. Wanfu was found to have inflated its earnings results before and after its IPO in 2011.