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CSRC lowers stock market transfer fees

By Cong Mu (Global Times)

08:04, May 02, 2012

While applauding a recent move by the regulator to reduce transaction costs in stock market, Chinese experts remain cautious on the future of fundamental market reforms, including new share issuance and delisting mechanisms.

The China Securities Regulatory Commission (CSRC), the stock market watchdog, released a statement Monday, saying that Shanghai and Shenzhen stock exchanges as well as China Securities Depository and Clearing Corp, 50-50 owned by the two exchanges, will cut their respective stock transfer fees charged on the stock brokers by an overall 25 percent, effective June 1.

As the capital market and the number of listed companies grow, the regulator decided to reduce transaction cost burden on investors to maintain market health, the statement said.

The cut of transfer fees, which make up part of the commission retail investors pay to brokers, is expected to result in a total reduction of 3 billion yuan ($477 million) in annual revenues to the exchanges, it said.

"The transfer fee reduction is good for increasing efficiency of the stock market, because it will bring down the overall cost," said Mei Jun, deputy director of the Financial and Securities Institute of Renmin University of China.

The transaction cost in the market is still high, considering that both the exchanges and the clearinghouse charge a myriad of service fees.

The CSRC move is the latest among a series of recent reform measures initiated since Friday under its new chairman Guo Shuqing, who is considered by the media to be a reform-mindedofficial.

"The fee cut may be a short-term boost to the market, but more fundamental reforms are yet to be seen in specific areas of dividend payment, new share issuance and delisting requirement," said Zuo Xiaolei, chief economist at Beijing-based China Galaxy Securities.

Mei echoed Zuo's views, saying that the current delisting requirement based on three consecutive years of net losses is "too lax," and only encourages a "speculative mentality," as investors in such an environment tend to bet on valueless, low price stocks that could have a turnaround by recapitalization.

From 2001 to 2011, only 248 out of 1,108 listed companies in China recorded earnings growth rates that exceeded the annual deposit rates, which have been below the inflation rate over past years, the Xinhua News Agency reported yesterday, without citing the source of the statistics.

Meanwhile, "only about 40 companies got delisted" since 2001, when the mechanism was put in place. Mei said "too many interests involved" in preventing a losing firm from being kicked out.

Draft proposals published on both Shenzhen and Shanghai stock exchanges Sunday suggested eight new conditions to beef up delisting requirement, including three consecutive years of operating income below 10 million yuan.

"What if a local government uses fiscal subsidies to prop up a failing firm in the third year?" Zuo told the Global Times.

Mei also said that fundamental changes to new share issuance will come when the regulator gives up its approval power and introduces concrete measures to fight such practices as pre-IPO bargain hunting for original shares by special interest groups.

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