Chinese regulators downplay effects of new equities rules
Summary
Chinese regulators sought to reassure investors in the wake of new rules governing its beleaguered equities markets, saying the once-in-a-decade changes will affect relatively few of the country’s thousands of publicly traded companies.Chinese regulators sought to reassure investors in the wake of new rules governing its beleaguered equities markets, saying the once-in-a-decade changes will affect relatively few of the country’s thousands of publicly traded companies.
The China Securities Regulatory Commission said late Tuesday that its new policy to flag companies for unsatisfactory dividends will mostly target healthy, profitable companies that pay no dividends or relatively small dividends over several years.
Flagging companies in this instance means assigning them a “special treatment" tag, which has been used for decades in China to inform investors of companies with abnormal financial conditions.
The CSRC said grounds for the tag would include paying cash dividends amounting to less than 30% of average net profit over three years, and paying total dividends of less than 30 million yuan (US$4.1 million) to CNY50 million over a three-year span, with the higher amount applying to companies listed on the country’s main boards.
The tag “is not a delisting risk warning, but to remind investors about the risks of investing in those companies," Guo Ruiming, a CSRC director, said in a statement. Companies in early stages of development with relatively high research spending will be exempt from the dividend requirements, the CSRC added.
The CSRC also clarified that new listing standards don’t target small-cap companies, which some investors said would be more exposed to delisting risk under the rules. The regulator said new delisting penalties for fraudulent behavior could affect about 30 companies next year, with another 100 companies potentially facing warnings.
It added that delistings wouldn’t occur until the end of 2025, giving companies time “to improve operations and improve quality."
The CSI2000, an index for small-cap companies in China, was up 5.5% by midday Wednesday, trimming losses this week to 6.05%. The index had sold off early in the week as investors feared the rule changes would lead to a raft of forced delistings among smaller companies.
The new rules—updates to a prior set of rules released a decade ago—are part of the CSRC’s drive to step up oversight of China’s flagging stock markets.
China has experienced an outflow of foreign investment in equities in recent years as the world’s second largest economy grapples with slowing growth, a property-sector downturn and weak consumer sentiment. The benchmark CSI 300 index of some of China’s largest listed companies has lagged behind regional stock markets with a 3.0% gain this year, coming after it slid more than 11% in 2023.
The CSRC has been seeking to boost market stability in recent months, especially after the Shanghai Composite Index fell below the key 2800 level in January. The regulator plans to spend CNY57.8 million this year to enhance law enforcement of illegal market activities such as IPO fraud, financial fraud, market manipulation and insider trading, according to its budget plan posted in March.
Write to Jiahui Huang at Jiahui.Huang@wsj.com
