Over the years, officials have moved to strengthen their supervision on the market in order to intimidate publicly traded firms into slicing off a portion of their profits for shareholders, but with limited results. In May, for example, the China Securities Regulatory Commission began requiring listed firms to create dividend pay out plans and disclose in their periodic financial reports how much they intend to hand over to investors, a policy which many said lacked the teeth to really make an impact on the market.
Indeed, many companies responded to this move by issuing dividends in the form of extra shares in order to keep more cash on hand.
But under the terms of the SSE's latest set of rules, if a company shares more than 50 percent of its annual distributable profits with investors, it will be eligible for fast-tracking on its refinancing, merger and acquisition plans. Not only that, exchange authorities will upgrade companies' annual performance ratings if they prove generous with dividends, a mark which would likely lure in more investors.
Rather than trying to coerce companies, traders and banks into following market rules, local regulators should craft more reward-based policies.
In the end, creating a well-regulated market which can support the development of the Chinese economy will never be a realistic goal unless market players have the desire and self-discipline to stay on the straight-and-narrow.
The author is an economic commentator. [email protected]
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