This article aims to provide an in-depth and comprehensive analysis of PRC Securities Law 2020 which overhauls China’s securities regulatory framework to construct more efficient and transparent capital markets with enhanced investor protection and market integrity. The law constrains regulators’ administrative powers in deciding the outcome of IPOs as well as streamline the securities offering procedure. This article pays attention to key reform initiatives proposed by PRC Securities Law 2020, such as the registration-based IPO system, the enhanced investor protection and compensation regime, the cross-border supervision, and the harsher punishments for securities frauds. It also discusses the latest enforcement cases relating to high-profile financial frauds like the Luckin Coffee scandal which resulted in Luckin Coffee being delisted from NASDAQ in 2020. The analysis in the article is accompanied by relevant US securities law in the same area to offer a comparative angle, which is of interest to practitioners, academics and policymakers in major financial centres.

Using a 2004 Chinese securities regulation that required equity offering proposals and other major corporate decisions to seek the separate approval of minority shareholders, we empirically test the effect of a regulatory increase in minority shareholders’ control over corporate decisions on shareholder value. While the overall stock market reaction to the announcement of the regulation is insignificant, the stock market reaction is more positive for firms with higher institutional (especially mutual fund) block ownership and more negative for firms with higher individual block ownership. The regulation helps deter management from submitting value decreasing equity offering proposals, especially for firms with higher mutual fund block ownership. In addition, value reducing equity offering proposals submitted in the post-regulation period are more likely to be vetoed in firms with higher block ownership of institutional and individual minority shareholders. Overall, our results suggest that the 2004 regulation increases shareholder value, especially in firms with higher mutual fund block ownership.

When the government is simultaneously the owner and regulator of the securities market, the evolution of securities market regulation follows a path of compulsory institutional change. China’s government authorities have played a dual role in this process by acting both as the securities market regulator and the controlling owner of the stock exchanges. This paper uses the evolution of China’s securities market regulation from 1980 to 2007 to illustrate this theoretical framework. It provides unique evidence of how securities regulation evolves in response to government direction and supervision if the government is both the owner and the regulator of the securities market.