Stock Market Reform & Regulation

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Earlier this month, in the latest effort to improve the stock market environment, the China Securities Regulatory Commission (CSRC) issued 26 guidelines, including a requirement for major shareholders of listed companies to repay any debts to those companies by the end of 2006 (as some shareholders have been tempted to treat such loans more like gifts).

Such corporate governance and regulatory issues are a common concern and, according to the sixth annual corporate governance survey by CLSA Asia-Pacific Markets and the Asian Corporate Governance Association, China ranked ninth out of 10 markets with 44 percent (other results included: Singapore, 70; Hong Kong, 69; India, 61). The scores were based on: rules and regulations, enforcement, the political and regulatory environments, international accounting and auditing standards and, more generally, a nation’s corporate governance culture.

Against this background domestic IPOs remain suspended, and are only expected to resume once the majority of companies with state-held shares finish converting them to tradable shares. The problems in the market are reflected by the fact that Shanghai share prices hit eight-year lows in the summer.

In related news it was reported that the CSRC shut down another weak securities company, Guangdong Securities, the 15th to meet this fate since August 2004 as part of a drive to strengthen the industry. The new China Securities Investor Protection Fund is to supervise the liquidation of the company.

Kevan Watts, Chairman of Merrill Lynch International, argues that while a lot of progress has already been made in developing Chinas financial services through the introduction of foreign competition and better regulation, more needs to be done. He notes that It is of the utmost importance for China to develop a larger domestic institutional investor base in order to create deeper, more mature equity and fixed-income markets. At the same time, to fund the expansion of domestic industries and maintain a healthy pace of economic growth, China needs to further open up its capital markets to international companies. This entails allowing foreign companies to take a controlling stake in domestic financial institutions and gain greater access to the domestic equity and fixed-income markets.

See related news:

    China Issues New Stock Market Rules
    Forbes – USA
    China has issued new rules requiring major shareholders of companies with publicly traded stocks to pay off their internal debts, among other measures, in its …

    China stock market to resume IPOs as state-share reforms progress
    Forbes – USA
    BEIJING (AFX) – China will resume initial public offerings (IPOs) once the majority of companies with state-held shares finish converting them to tradable …

    Good Corporate News in China? Stop Laughing
    Bloomberg – USA
    Dec. 2 (Bloomberg) — Walking the streets of Shanghai, it’s easy to see why investors’ appetite for all things China is running so high. …

    China stock regulators close 15th firm
    Monsters and Critics.com – Glasgow,UK
    … continue operating. The agency ordered the new China Securities Investor Protection Fund to supervise the liquidation of the company.

    Developing China’s capital markets
    China Daily – China
    By Kevan Watts (China Daily). China is undergoing … transparent capital markets. Now is the time for China to allow a more dynamic rate of change. …

(Updated 2/12/05)

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