China Securities Regulatory Commission Photo: CFP

The Wind Micro Market Cap Index, which tracks 400 of the smallest-cap companies listed in the A-share market, closed up 9.68 percent on Wednesday amid a broad market rally, following the late-night response by the CSRC on Tuesday saying that the recently issued delisting guidance doesn't target small-cap stocks but aims to clear out "zombie shell" companies and "black sheep" stocks.

Observers said that the late-night reply by the China Securities Regulatory Commission (CSRC) refuting market rumors showed that it attaches great importance to stabilizing investor sentiment, especially targeting small and medium-sized investors, with a determination to further regulate the market. 

The adjustment targeting delisting aims to step up efforts to clear out "zombie shell" companies and "black sheep" rather than targeting small-cap stocks, with sound arrangements planned in standard setting and transitioning management, which will not have an impact on the market in the short term, Guo Ruiming, head of the CSRC Department of Listed Company Supervision, said in the Tuesday statement. 

Guo stressed that market rumors about the adjustment targeting small-cap stocks are a pure misunderstanding. The market rumors claimed that the adjustment has had a major impact on Chinese small-cap stocks, which have slumped previously. 

The CSRC on Friday released a guideline on strict implementation of delisting regulations, which focuses on improving the overall quality of listed companies, clearing out "zombie shell" companies and "black sheep" stocks, and reducing the value of "shell" resources through stricter delisting regulations, expanding and diversifying exit channels, and strengthening investor protection. 

The guidelines were promulgated after China's State Council, the cabinet, released a nine-point guideline on the same day to strengthen regulations, tackle risks and promote the high-quality development of the capital market.

Guo's response was necessary as the market rumors were misperceptions, especially as most small-cap stocks normally do not reach the threshold for delisting, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China told the Global Times on Wednesday.

The delisting guidelines don't target small-cap stocks but rather some "junk stocks" that may trigger the delisting conditions, Yang Delong, chief economist at the Shenzhen-based First Seafront Fund, told the Global Times on Wednesday.

Once the misunderstanding was cleared up, small-cap stocks rebounded sharply on Wednesday after a slump in the first two trading days.

The Wind Micro Market Cap Index, which tracks 400 of the smallest-cap companies listed in the A-share market, closed up 9.68 percent on Wednesday amid a broad market rally, following the late-night response by the CSRC on Tuesday.

Experts said that the stepped-up regulation efforts in China's capital market will also contribute to China's goal to build a world-class financial sector.

The CSRC will resolutely implement the main responsibility and supervision, push forward its system in full and strict governance by the Party, and better promote the capital market to realize high-quality development on the basis of strong supervision and risk prevention, Wu Qing, chairman of the CSRC, said at a recent meeting, according to a CSRC post on Tuesday.