China's stock market capitalization topped its gross domestic product (GDP) for the first time last week.

The explosive growth of the domestic stock market has different implications for investors and companies. Yet, for the securities authorities, it means an urgent call for more effective regulation.

Market data showed that the overall value of Chinese shares surpassed the 21 trillion yuan ($2.77 trillion) of GDP last year when the benchmark Shanghai Composite Index hit a fresh high on Thursday.

The sheer size of the stock market tells a lot of its increasing importance to the economy. By including more and more large companies, it is able to serve as a more accurate barometer.

The speed of the market's expansion in recent years is even more impressive. Two years ago, the total value of Chinese shares was 3 trillion yuan. But now, with more large-cap State-owned companies to be listed later this year, the market capitalization will rise by a considerable margin, even after exceeding the country's GDP.

For investors, an expanded market means they will have more investment choices. For companies, the increased depth of the stock market will provide them with more fundraising opportunities. However, for the market regulators, the rapid expansion of market capitalization calls for doubled efforts to check various irregularities and protect the interests of public investors.

On the one hand, the fast expansion of the market is based on an unprecedented stock boom, which has typically given rise to various market malpractices. The China Securities Regulatory Commission said last month that in the first half of the year, it had fined 16 listed companies and two brokerage firms, warned 134 individuals and banned 46 people from entering the stock market. Increasingly rampant speculative activities have contributed to the stock market frenzy that is fueling unsustainable bubbles.

To maintain investors' confidence in the market's long-term development, the market watchdog should tighten supervision to prevent such wrongdoings.

On the other hand, the increased size of the stock market also indicates it will exert a greater impact on the economy. Thus, to ensure the sound development of the stock market, the securities authorities must ensure transparency and fairness while heightening vigilance against any possible wrongdoers.

(China Daily August 13, 2007)