IT will soon be the Year of the Dragon in China, but many investors stung by losses in 2011 are wondering if it will be another year of the bear.

The Shanghai Composite Index dropped 22 percent in 2011. A recent survey conducted by Sina.com said 89 percent of investors lost money in stocks.

Market regulators have been quick to reassure the public that there's nothing to fear from investing in shares.

"I'm confident about the stock market," Guo Shuqing, who took over as chairman of the China Securities Regulatory Commission in November, said on December 30.

He didn't offer any reason why China was the second worst-performing major market in the world, after India, when the Chinese economy grew at an expected 9.1 percent to 9.3 percent last year.

Many investors, particularly smaller, individual investors, are licking their wounds over 2011 losses and will need more reassurance that the market is a level playing field for all and not just a lucrative piggybank for a favored few.

Penalties imposed

On December 9, the CSRC disclosed details in six securities fraud cases, including the biggest to-date, involving transactions of 57.2 billion yuan (US$9.08 billion).

On Monday, the regulator said it had investigated 209 suspect securities deals in 2011 and imposed penalties in 68 of the cases and banned the executives involved from the market. By November it had imposed fines of 335 million yuan, the highest amount in recent years, and revoked the professional licenses of two fund managers.

While the litany of "get tough" measures sounds good, some wonder whether the CSRC really has the tools and power to root out systemic misconduct.

Liu Guanwu, an IPO analyst with Analysys International, said the CSRC has to be given greater powers to act more promptly when wrongdoing is suspected.

"Sometimes enforcement is too hamstrung by delays and overlapping regulatory authorities," he said.

Zhou Junsheng, a market observer, said the CSRC enforcement tends to be selective, letting illegal acts slip through unpunished. He pointed out that the six fraud cases disclosed on December 9 occurred three to four years ago.

"Criminals may have transferred their assets, making it difficult for the regulator to impose punishment or collect compensation," he said.

Critics of the US market-regulatory system often complain about the slow wheels of enforcement there, but it seems fast by contrast.

Hands tied

In early December, for example, the US Securities and Exchange Commission charged four Chinese with using insider information to buy American depository shares of Global Education & Technology Group Ltd and pocketing a cool profit of more than US$2.7 million when the company was taken over by UK-based Pearson Plc on November 21. The SEC quickly froze the assets of the Chinese.

Cheng Siwei, former vice chairman of the Standing Committee of the National People's Congress, said the CSRC's hands are often tied when high-ranking officials intervene in enforcement efforts.

For example, he told China Economic Weekly magazine the CSRC may be told to tread lightly when it's investigating fraud associated with big State-owned companies which have clout with the government.

He suggested China erect a strict delisting system and adhere to it.

Too many IPOs

On another front of concern to investors, Cheng lamented the rapid growth of initial public offerings just when China's economic growth is slowing. Many IPOs in the past year have just been routes to quick profits for the issuers, leaving a market with an abundance of shares.

So what does a new man at the top really mean for CSRC activity going forward? Not much, Cheng lamented.

"A lot of decisions are not made by the CSRC," he said, citing the start of the long-awaited international board for foreign companies as one example. "I don't believe there will be big changes in the capital markets."

But hopes remain that tomorrow will be brighter than yesterday.

Liu Junjie, a 22-year-old student who has invested in stocks for two years, wrote on his blog that the CSRC should revise existing laws and show no mercy to anyone breaking the law.

CSRC 2012 priorities

CSRC chairman Guo Shuqing pledged to tackle overpriced initial public offering prices to restore investors' confidence in the stock market, he said at a national work conference in Beijing on Monday.

Guo's remarks echoed Premier Wen Jiabao's comments on Sunday to step up stock market supervision.

The CSRC will also promote long-term investment in the stock market, said Guo.

The CSRC will actively push pension and housing funds to invest in capital markets, and encourage long-term investors, such as insurers, to raise investment.

The CSRC will also reform the company delisting system and bond market, he noted.

Guo reiterated his determination to eradicate insider trading and market manipulation.

Recent major announcements

December 28: Xu Chunmao, former fund manager with Everbright & Pramerica, was banned from the market, fined 2.09 million yuan (US$331,000) and sentenced to three years in prison for insider trading.

December 27: The CSRC announced four cases of insider trading involving prominent party members and staff of the Ministry of Supervision and the Ministry of Public Security in Beijing. CSRC Vice Chairman Gui Minjie said a more precise legal definition of insider trading will be released soon to increase regulation efficiency.

December 19: CSRC Chairman Guo Shuqing introduced six measures to promote information transparency of listed companies, including boosting supervision and accountability to board directors and senior management.

December 1: Wu Jianmin, an ex-member of the CSRC's Public Offering Review Committee, was sacked for holding shares in a listed company he audited.

November 29: The IPO application of Hunan Shengjing Shanhe Bio-Technology Co was rejected and the licenses of two sponsors of the listing were revoked.

November 29: Li Xuli, former investment director of the Bank of Communications Schroders Fund Management Co, was confirmed to have been arrested.

November 26: The CSRC unveiled a new registration system for holders of listed firm shares to ban insider trading.