More professional institutional investors entered the market last year. In December, China Securities Regulatory Commission approved six more Qualified Foreign Institutional Investors. This means China now has 207 QFII investors. Guo Shuqing, former president of the commission, has said that the scale of QFII and yuan QFII in the future should be 10 times the current scale. That would raise the total to 7.66 trillion yuan, which will considerably strengthen the power of institutional investors in the market.

Many individual investors lack necessary financial knowledge needed to work the stock market successfully. Institutional investors, on the other hand, are able to make profit by applying long- and short-term equity strategies, and they can hedge their risks using securities' margin trading and stock index futures.

The higher the number of financial institutions the greater is the likelihood of a change in the structure of market valuation, because institutional investors are prone to focus on long-term value investment instead of pursuing short-term gains, which is quite different from most individual investors' goal.

Though more financial investors could ensure healthy and stable market growth, institutional investors have started dominating the stock market. Therefore, the CSRC should be prepared to deal with the inevitable transition. It should learn from the experiences of other countries - that institutional investors can escape supervision more easily than individual investors, which could trigger a subprime-like crisis that overshadowed the US in 2008.

China's financial market is still in its early stages and the CSRC is quite cautious about regulating the stock market. So in the short term, more professional financial institutions can help standardize and stabilize the market.

It is thus highly likely that, given the rapid growth of stock market and the need to compete in the international arena in the near future, China will introduce more innovative and complicated trading measures. That, however, will require more advanced and stronger regulations, especially the ability to hedge risks and prevent a crisis.

A maturing stock market will present more challenges to Chinese regulators, and the CSRC should be prepared to meet them.

The author is a reporter with China Daily.

Email: zhujin@chinadaily.com.cn.

(China Daily 05/03/2013 page9)