The State Council released a statement on Friday calling for greater protection of the interests of small investors in China's capital market.

The council, which is China's cabinet, vowed to ensure that investors are matched with appropriate products. It also said the nation will optimize the mechanism of return on investment and increase voting rights for small shareholders.

China will create a system to classify investors by their risk tolerance and their understanding of capital markets.

Securities and futures companies and their intermediaries will be required to evaluate the risks of financial products and services and recommend them to investors with corresponding risk tolerance levels.

According to the statement, listed companies will be encouraged to pursue sustainable returns by improving corporate governance.

Listed companies must announce detailed arrangements for cash dividends. They will be required to repurchase their shares in cases where the price falls below net asset value.

The statement also said companies should improve the voting rights of small investors, including allowing small investors to vote for directors and increasing the use of online voting. Companies will be forbidden to restrict voting to shareholders whose stakes exceed a certain threshold.

In cases where significant issues may influence the interests of small investors, their votes should be taken separately and forwarded to supervisory authorities.

In the statement, the State Council also said it will guarantee small investors' rights to know and perfect the compensation mechanism for small investors.

Deng Ge, a spokesman for the China Securities Regulatory Commission, said on Friday that the State Council announcement will benefit many investors, increase market confidence and encourage market innovation.

"The statement will improve the functions of the capital market and make it more diversified in terms of instruments and products. The statement will lead to changes that will improve the quality and efficiency of the capital market," Deng added.

In China's policymaking process, the State Council often lays out broad principles, which specific agencies such as the CSRC then implement with detailed regulations.

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