MOVES BY REGULATOR FAIL TO HALT SHARE SLIDE IN CHINA

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By Jamil Anderlini in Beijing 2008-09-01
Share prices continue to slide in China in spite of a slew of initiatives by the country's regulator to bolster the stock market.

With China's benchmark index down 54 per cent this year, the China Securities Regulatory Commission has suggested tougher penalties on insider trading, higher dividend pay-out requirements, looser share buyback rules and tighter disclosure regulations.

Rather than targeting a short-term boost for the index, these policies appear aimed at laying foundations for the long-term development of the ailing market by improving corporate governance and market efficiency.

In the past few years, the government has tried to influence stock prices by raising and lowering the stamp tax, encouraging and restricting foreign involvement in the market and the flow of new share sales and even printing editorials in prominent state newspapers. But some analysts think the days of short-term government stock price targets could be drawing to a close.

“The government's attitude has changed and it is much more willing to let the market fall to a level reflecting fundamentals,” said Isaac Meng, an analyst with BNP Paribas

In spite of the plunge in prices, there also has not been the sort of widespread public outcry that has been the justification for government intervention in the past. That has allowed the regulator to concentrate on long-term policies to improve the structure of the market.

Last week, the CSRC published a policy to stop listed companies raising money in secondary offerings unless they have handed out an average of 30 per cent of net profits in dividends over the previous three years. If applied strictly, this wouldhalt plans by about 100 companies to raise a combined Rmb222bn($32.4bn) this year, according to a report from Citic Securities.

The regulator is also working on a system to allow the orderly sale of formerly non-tradable state-owned shares, an issue that has been hanging over the Chinese stock market since its inception in the early 1990s.

But the urge to interfere with the market remains powerful among senior Communist leaders.

In a research note two weeks ago, JPMorgan said China's top leadership was “carefully considering” an economic stimulus package of Rmb200bn-400bn that would include measures to “stabilise domestic capital markets”, possibly through a stabilisation fund that would buy shares in the market to boost prices.