New delisting rules find first victims

Two Shenzhen-listed junk shares will be delisted from China's A-share market, according to an announcement made late Monday by the Shenzhen Stock Exchange (SZSE), marking the first delisting case since new delisting rules took effect in late June as well as the first delistings seen in the mainland equity market in nearly five years.

Jiangsu Chinese Online Logistics Co and Powerise Information Technology Co, both of which bear delisting warnings (*ST) and have been suspended from trading since before 2012, had their applications to resume trading rejected by the SZSE Monday, a development which will almost certainly lead to their delisting on January 4, the first trading day of 2013. 

Meanwhile, Sichuan Direction Photoelectricity Co and Shandong Hi-speed Road & Bridge Co, which bear the same delisting warning and had been barred from trading prior to the start of this year, were given the exchange's approval to resume trading.

Aside from these four companies, there are another 13 A-shares and one B-share facing possible delisting in the days ahead. 

According to the terms of recently revised delisting rules, authorities at the mainland's two stock exchanges have to make a final judgment on these firms' listings before December 31.

Delisting will become more commonplace as China's stock markets mature, according to statements posted recently on the SZSE's official website. Historically, underperforming companies were rarely swept off mainland boards. Prior to Monday, the last delisting seen in the mainland occurred in December 2007.

"Delisting of junk shares will boost investor confidence by improving the investment environment at the stock market," Cai Junyi, chief investment consultant from Shanghai Securities, told the Global Times.

In the past, much of the capital entering the stock market flowed to shares carrying risk warnings rather than financially sound enterprises as speculators gambled on the chance that these penny-stocks would soar in value in the event of a restructuring, Cai explained.

"Speculation on junk stocks diminished after regulators showed they were determined to improve the delisting system," Cai said. "More investors are now looking for high-quality stocks that seem like good positions over the long run. Actually, the recent rallies seen at the markets have been largely fueled by blue chips rather than junk shares."

Jiangsu Chinese Online Logistics was ultimately stripped of its listing because it suffered a loss during the first financial year after being suspended from trading, the SZSE said. Exchange officials cited a lack of operational income and sustainable business capacity on the failure of Powerise Information Technology's relisting bid.