When Chinese shares tumbled amid a global market rout this month, a letter accusing regulatory authorities of being lax in their duties was widely circulated around major websites and struck a chord with investment netizens.
The open letter, written by a person identified only as "an ordinary stock investor," was addressed to Shang Fulin, president of the China Securities Regulatory Commission.
It blamed "human factors" - including weak administrative rules and inadequate controls over initial public offerings - for much of the market's ills. The letter was originally posted on Tianya.com, one of the country's most popular online communities.
"New listings have gotten out of control," the letter said. "The number of listings falling below the initial public offer price has been atrocious, which has made IPOs simply a cheap, personal blood bank for those firms and their bosses. Ordinary shareholders like me are bleeding."
The writer continued: "Chinese stock markets have never been a place where people can invest and reap a harvest but rather a place haunted by speculators."
The letter said regulators need to take firmer control over the timing and the quality of public share sales.
It received more than 110,000 clicks and over 1,200 replies on Tianya.com alone.
Days passed, and there was no direct response from the CSRC. However, the Securities Times, one of China's four largest business dailies and the paper designated by the regulator to handle public notices of company filings, ran an editorial in an apparent effort to squelch anger and ease the uproar created by the letter.
"The Chinese stock market is still at a young age," the editorial said. "Investors should be patient because a mature market requires time to develop. We need to have faith in Shang (Fulin) and the market itself."
Faith? It would take a leap of faith to believe such a feeble excuse for the CSRC's performance.
Shang, 60, has been president of the CSRC since the end of 2002. He took the post more than 18 months after the Shanghai Composite Index hit a then record high of 2,245 points.
Not quite 10 years on, the index closed at 2,515.86 yesterday. That means a gain of only 270 points in a decade when China surpassed Japan as the world's second-largest economy and when its wireless and car markets skyrocketed to the largest in the world.
In that same period, the number of listed firms doubled to 2,269, and the combined market value of Shanghai and Shenzhen stock markets jumped to more than 25 trillion yuan (US$392 billion) from 4.4 trillion yuan.
Last year alone, the mainland markets led the world in initial public offerings, with 349 companies selling shares and raising nearly 490 billion yuan - both records.
In the first half of this year, mainland markets again beat global counterparts with 164 new listings, raising 160.8 billion yuan. The Shanghai index shed 2.2 percent from January to June.
Unfortunately, returns are not growing along with the size of the markets. Individual investors are seeing red.
More than 70 percent of 40,000 respondents in a survey by Dazhong Securities News said they had lost money in stock markets last year, when the Shanghai index tumbled almost 16 percent. Up to 80 percent of those who reported losses said their investments dived between 20 percent and 40 percent. Are these the kind of figures that are supposed to inspire faith in the CSRC and its president?
Shang holds a doctoral degree in finance from Beijing Finance University and is a former president of the Agricultural Bank of China. He has long been an advocate of the concept that bigger is better where markets are concerned. During his tenure, he oversaw the launch of the small- and-medium-sized enterprise board (SME) and the Nasdaq-style ChiNext for technology start-ups.
His idea was to give companies greater access to capital. But as the Chinese saying goes: A child is better unborn than untaught. Maybe it would be better to have bourses unborn than unregulated.
"The ChiNext board is a huge bubble and will collapse within three years," Liu Shengjun, deputy director of the China Europe International Business School's Case Center and the Lujiazui International Finance Research Center, wrote on his Sina microblog recently.
Liu, a long-time critic of the supervisory performance of the CSRC, cited corporate accounting fraud as the biggest threat to ChiNext's future.
"There's no way a crow can father a phoenix," Liu wrote. "ChiNext can never grow into China's Nasdaq."
He added: "Shares listed on ChiNext are worse than those on the main boards because the threshold required for listing is even lower."
The CSRC is responsible for deciding which companies are allowed to list on all bourses. It currently has two panels to assess IPO applications.
One 25-member panel handles listings for the two main boards in Shanghai and Shenzhen and for listings on the SME board. Five of the panel's members are from the CSRC, and the remainder is made up of auditors, lawyers and mutual fund firms.
For the ChiNext board, the CSRC set up a separate 35-member panel, with five members appointed from the regulator and the rest appointed as part-time members from the securities industry.
The panels are empowered to meet with only a seven-member quorum, giving extraordinary powers to a small clique. An IPO can be approved by five of the seven members, in a secret ballot.
So far, there have been no public reports of any bribery related to these panels, but there is an unspoken rule among investment banks and securities firms that money can help grease the wheels, a market insider, who asked not to be identified, told Economic Observe in a previous report.
Even if the panel members are totally clean, loopholes abound in the IPO approval process.
A panel's decisions are based solely on paperwork provided by the company seeking an IPO, its underwriters, auditors and lawyers. Just how much independent verification, if any, of their claims iremains a mystery.
"That is why so many firms, once listed, change their earning reports and outlooks," Liu has said previously.
According to corporate earnings reports last year, 32, or 15 percent, of the 209 firms listed on ChiNext reported losses, some as large as more than 40 percent. In the first quarter of this year, 47 ChiNext-listed firms reported losses.
Since 2009, 49 companies have been fined by the CSRC for cooking their books, and 31 of those firms are still under investigation.
But none of them has been delisted. No underwriter or auditor has been punished for "accidentally overlooking" the facts on murky IPO applications.
In the 21-year history of the mainland's yuan-denominated Class A-share markets, only 30 companies have been delisted and relegated to the over-the-counter market. That's about 1 percent of the 2,269 companies now listed.
According to the CSRC rules, a company will be delisted if it fails to make a profit in the previous three consecutive years.
Some loss-making firms have steered around that threat by reporting deliberately large losses for two years, making it easier to report a small profit in the third year.
Companies, which face the threat of delisting, can miraculously see their share price double or even triple on market speculation of a restructuring plan.
"The only way for the Chinese stock market to have a future is for regulators to break the hold of unscrupulous operators using it for their own personal gain and to make the markets open, fair and transparent," Liu said.
That may be a tall order.