News Analysis: Major Move Towards Healthy Securities Market

When investors flocked to the country's numerous stock trading sites Tuesday they found that one stock was missing from the indication board. It was PT Narcissus.

Late Monday night, the China Securities Regulatory Commission (CSRC) announced its decision to delist the stock from the Shanghai Stock Exchange, the first ever move in China's dozen-year history of the securities market.

The decision followed an announcement by the bourse last Friday, in which the delisted company, which had reported four consecutive loss-making years up to April 18, was denied a grace period.

Observers have widely hailed the long-anticipated move as a major step towards a more mature stock market, which they believe will be conducive to the stable and healthy development of the country's fledgling stock trade.

The stock market has been playing an increasingly important role in the Chinese economy and has become a major source of funds for Chinese enterprises. In 2000 alone, China's 1,200-odd listed firms raised 320 billion yuan from the stock market.

However, the lack of an exit mechanism has weakened the market's function in resources distribution. In the worst cases, it has become a cash cow for some listed firms.

More than one economist has blamed this phenomenon for the increasing number of loss-making listed firms and a decline in the performance of listed firms as a whole.

Moreover, it gives investors a false impression that listed firms will never be delisted, and has led to rampant speculation in loss-making ST and PT stocks. This had reached such a pitch that even after the CSRC had embarked on the procedure for delisting in February, investors ignored all this and continued to buy ST and PT stocks, pushing their prices to new heights repeatedly.

Liu Jianjun, a researcher at the Shanghai Academy of Social Sciences, pointed out that the establishment of the delisting system is of great significance for the Chinese economy.

For a long time, many people in China have been improperly stressing the role of the stock market in raising funds, but ignoring its more important role in resources distribution, he said.

"From now on, we have to put more emphasis on corporate governance, and take measures to encourage managers to run their businesses in a more responsible and professional way," he added.

Wu Xiaoqiu, a finance expert at Renmin University in Beijing, said the delisting mechanism will help enhance investors' risk awareness, encourage rational investment and reduce the frequency manipulation of junk bonds in the market.

Majority of investors have expressed their welcome to the delisting order.

At a trading site of the Nanfang Securities Company here, delisting was the major topic for investors Tuesday. Most of them agreed that long-term loss makers should be delisted for the benefit of the market.

Those who disagreed have paid a heavy price. A woman who identified herself as Zhou said she bought 30,000 Narcissus B shares five years ago at 32 U.S. cents per share.

Though the stock had been dubbed PT for years, she did not sell it until April 6, after repeated warnings about delisting by regulators, thus incurring her a loss of 6,000 U.S. dollars.

"I intend to buy blue chips for long-term investment in the future," she said.

The performance of the market Tuesday indicated investors' welcome for the move and their confidence in the future.

The Composite Index of the Shanghai bourse closed 15.74 points higher, and its Component Index closed 13.53 points higher. The combined turnover hit 19.8 billion yuan.






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