China's financial regulators want to create a fund to compensate investors swindled by fraudulent brokers, in hope of restoring confidence and stopping waning interest in mainland stock markets.

The central bank, the finance ministry, the China Banking Regulatory Commission and the China Securities Regulatory Commission have issued a joint proposal for a central government-backed fund to protect retail investors' interests and maintain financial and social stability when brokerages and financial institutions collapse.

The program would allow investors with cash deposits of up to 100,000 yuan or 12,000 US dollars to be fully compensated.

Those with amounts above 100,000 yuan would receive compensation of 90 per cent from the fund, with the remaining 10 per cent becoming the responsibility of the local government.

The proposal comes as an increasing number of brokerages are on the edge of collapse after illegally diverting clients' cash deposits into stock and bond investments that soured because of the declining A-share market.

China has about 120 state-owned brokerages. The industry's 40 largest players reported a combined loss of 260 million yuan in the first half of the year.

Poor management, limited fund-raising avenues and a protracted slump in the stock markets since 2001 are the main reasons for the brokerages' troubles.

Source: CRI news