• Tuesday, October 13, 2015

Shenzhen bourse's move provokes questions about stock reform

Staff Reporter 2013-01-09 13:34 (GMT+8)
The bell at the Shenzhen Stock Exchange. (File photo/Xinhua)

The bell at the Shenzhen Stock Exchange. (File photo/Xinhua)

The series of announcements made by the Shenzhen Stock Exchange in late December relating to the delisting of two companies and the resumption of trade in the stocks of nine others has raised questions about the stock market reforms introduced several months ago, the Chinese-language magazine Global Entrepreneur reports.

On Dec. 24 and 26, the Shenzhen bourse announced that it had approved applications from nine companies to allow the resumption of trade in their shares, which had been labeled as being under special treatment (ST) on the exchange, while two other stocks would be delisted.

The ST label is given to a company that reports two consecutive losses and is meant as a warning to investors about the risks involved in buying that company's shares, since it is on the brink of being delisted.

With the last stock delisting in China having taken place in December 2007, the magazine said the poor implementation of market rules had led to rising speculation about ST stocks.

While a Shenzhen stock exchange official said delisting will now become a routine and normal market practice, prices of ST stocks in China surged on Dec. 27 following the announcements.

The magazine added that the Shenzhen exchange made the decision regarding the companies as it was obliged to do under the 2008 regulations governing stock listings. The bourse's regulations stipulate that the exchange must decide whether companies, trade in the stocks of which have been suspended prior to Jan. 1, 2012, are to be allowed to resume trading by the end of that year.

"The Shanghai and Shenzhen markets have achieved a certain scale. While the previous target was to expand the market, it is now time to bring in new players and weed out poor performers in order to create more buzz and competitiveness in the market," said Liu Junhai, head of the Commercial Law Institute at Renmin University of China in Beijing.

The new delisting mechanism introduced in 2012, the magazine said, envisioned more scenarios under which a company could be delisted. However, the continuing problems at several companies whose stocks are poised to resume trading have led to the market questioning whether these new delisting policies would last, the magazine said.

A restructuring plan proposed by one of these companies, China Tungsten And Hightech Materials, was rejected by the China Securities Regulatory Commission in December, an investment banker said.

The banker said executives had been working hard to prevent the company from being delisted, while shareholders had staged protests in front of the Shenzhen bourse to avert this possibility. Even the local government had become involved, owing to concerns for the company's employees should the company be delisted and subsequently file for bankruptcy, the banker said.

"There are many bad companies that have not been forced out of the market. This has been unhelpful in teaching investors the concept of value investing," the banker said.

As of 2011, only 45 companies had been delisted from the Shanghai and Shenzhen bourses, where stocks of over 2,000 companies are traded, the magazine noted.

Who`s who »
Qu Qingshan (曲青山)

Qu Qingshan was born in Rongcheng, Shandong province, in May, 1957. He is a history professor and previously took a post as deputy head for the Chinese Communist's Party's Department of History....