Revisions will stabilize financial markets, push A shares higher: experts
The China Securities Regulatory Commission (CSRC) on Thursday said that it has issued a series of recommendations on revised regulations regarding stock buybacks by companies listed in domestic stock markets.
The CSRC announced a proposal, formulated in cooperation with China's central bank, the Ministry of Finance, the State-owned Assets Supervision and Administration Commission and the China Banking and Insurance Regulatory Commission, to amend article 142 of China's Corporation Law, which regulates share repurchases. The existing law is described as allowing an excessively narrow set of options for public companies to buy their own stocks, while the existing procedures are described as being too complex and slow-paced.
Experts noted that the proposal will greatly increase the number of stock buybacks in China, which will stabilize financial markets and push A shares higher.
"This is great news," Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times.
"The great bull market in the US has been underpinned by massive stock buybacks by large companies. In China, 280 companies have seen their market caps drop below their net assets, including many very large companies. It is absurd. More stock buybacks will help stabilize the markets, and will be of great help for both companies and their employees," said Li.
The new rules will expand the mechanisms available for firms to repurchase their own stocks, such as allowing buybacks in employee incentive plans or convertible corporate bond schemes.
The procedures to enable buybacks will also be simplified to aid in faster decision-making for public companies.
"Present regulations are too slow and limited. The new laws will accelerate buyback plans by Chinese companies, and given that five government agencies were involved in drafting the new rules, implementation will likely be faster than most people expect," Li said.
A treasury stock system will also be established for the first time in China, through which public companies can hold their own repurchased stocks.
The law amendment has been published for public opinions.
