China's listed firms are to be asked to do more to protect the interests of public investors through effective communication, adequate information disclosure and improved corporate transparency, according to guidelines issued yesterday by China Securities Regulatory Committee, the market watchdog.
According to the guidelines, the listed firms should offer timely, authentic and complete information to investors. The information should include the company's development strategy, business scale, financial soundness, profit, dividend distribution, and important asset changes.
Various channels such as telephone, fax, newspaper, TV stations and the Internet should be utilized. An online platform should be set up to answer questions from investors.
Moreover, the firms should offer investors equal access to corporate information.
China's stock investors have long complained about the lack of accurate information available to them when they make their decisions.
"It is very hard for us small investors to get information from the listed firms about their business situation, " said Jiang Ming, a stock trader in Beijing.
Requirements do exist for the listed firms to disclose relevant information about their business.
But the listed firms are often reluctant to do so, because most of the shares are held by State or legal bodies and so are not negotiable or subject to market fluctuations. That results in listed firms not being interested in those shareholders who can trade shares," says Dong Chen, a senior analyst at China Securities.
"There's always a conflict in the relationship between investors and listed firms," notes Dong.
He also said that the ongoing non-tradable flotation reform offers a perfect chance to change the current situation.
When all the shares are floated and tradable, public and private investors are all in the same boat and have to shoulder the market risks together. Timely and accurate information disclosure can help the public investors make their decision and so help maintain a stable market. And the former non-tradable shareholders can benefit a lot from a stable market, because their assets will not disappear through big fluctuations in the share price, the analyst explained.
But the guidelines do not guarantee that all the listed firms will communicate with the investors and offer them enough information, said Yi Xianrong, a finance expert at China's Academy of Social Sciences.
The market system should be improved and legal loopholes should be removed, he said.
Some experts believe that the biggest priority right now is for the non-tradable shareholders to provide enough compensation to the tradable shareholders. When floating the former non-tradable shares, the non-tradable shareholders always offer shares or cash as compensation to the tradable shareholders. That's because the non-tradable shareholders spend much less than the tradable shareholders to buy the shares and are not influenced by the price fluctuation. Moreover, they get more dividends for the same cost than the tradable shareholders because dividends are distributed according to the share numbers rather than the share price. About 46 pilot firms have been selected to experiment with the share flotation reform.
But the compensation to the tradable shareholders is not enough, said Zhang Weixing, an economist in Beijing. Only when the interests are balanced between the two types of investors, can there be effective communication between them, he said.
