The headquarters of the China Securities Regulatory Commission in Beijing File photo: VCG

China's securities authority is working to establish a long-term credit system for its capital markets and expanding its credit database in an effort to push market reforms and facilitate the registration-based IPO mechanism, according to a report by the Xinhua News Agency, citing officials from the China Securities Regulatory Commission (CSRC).

According to the legal department of CSRC, as of November 2019, the market entity entries exceeded 1.06 million in its credit database, including 77,000 market institutions and 929,000 individuals. 

More than 31,000 administrative licenses were stored in the database, and more than 20 million records involving dishonest behavior were shared among different departments. 

Credit records have been gaining importance in market regulation. The latest amendment to China's securities law in December 2019 stipulated that market entities' credit records should be set up for the reference of regulators. 

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times that a comprehensive credit record system can provide a foundation for the registration-based mechanism for IPOs and help push for further reforms in China's capital markets.

"The STAR Market represents a brand new market system, and what sets it apart from the traditional stock market is that it allows for the use of the registration-based IPO mechanism," Dong said. "It is a new system that is more inclusive and market-oriented, but it will also require more transparent information disclosure to ensure the quality of the IPOs." 

Shanghai's Nasdaq-style STAR Market was launched in June 2019, underpinned by the registration-based IPO mechanism. A similar mechanism will soon be rolled out on ChiNext, the start-up board in Shenzhen, South China's Guangdong Province, according to a report by the Xinhua News Agency, citing CSRC Chairman Yi Huiman. 

Under the shared credit system, people with records of dishonest behavior can be subject to CSRC punishment outside the capital markets. People who fail to fulfill public commitments, or those who fail to pay administrative fines for securities and futures, can be banned from taking trains and civil aircraft, according to the CSRC regulations.