CSRC needs firm hand with violators

A new round of stricter delisting rules took effect Monday for China's A-share market. According to the China Securities Regulatory Commission (CSRC), companies in violation of regulatory requirements will be removed from the Shanghai and Shenzhen stock exchanges. Many wonder though whether these new rules will really be enough to expel unqualified companies from the securities market.

Such concerns are justified in light of the historically toothless nature of China's delisting mechanisms. As early as 1994, China's Company Law stipulated that companies could be delisted after three consecutive years of losses or after being caught fabricating their financial results. Yet, since the first delisting case in 2001, only 78 companies have been delisted from the A-share market. Most companies that have been caught cheating in their IPO prospectuses and information disclosures have received only mild punishments. If the mainland stock market lacks anything, it's not delisting rules.

Instead, what it really lacks is effective implementation of these rules. Regulators need to revive investor confidence by actually expelling companies from the market for major violations.