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SCMP Reporter

China's securities regulator has resorted to dividend payouts to bolster the weak stock market, hoping to attract fresh capital amid a bigger distribution of profits by listed firms.
Beijing will probably link top managers' salaries to the size of dividends the companies give to shareholders, a last-gasp effort to shore up the slumbering market.
The China Securities Journal said yesterday that the regulator was studying ways to establish a mechanism that would encourage bosses to earmark more distributable profits for investors.
An official with the China Securities Regulatory Commission said senior corporate executives could be rewarded with higher salaries if the companies raised dividends to shareholders.
'But it would be just part of the efforts to increase dividends. Not all companies will necessarily be required to embark on the system.'
 Senior managers of state-owned companies are subject to a salary cap by the State-owned Assets Supervision and Administration Commission. The new system is likely to apply to state-owned firms trading on mainland exchanges, analysts said.
On the mainland, millions of retail investors, keeping a close watch on policy directions rather than fundamentals, will be expecting a government-orchestrated rally.
The Shanghai Composite Index gained 1 per cent to 2,948.48 points yesterday.
The front-page article on the securities newspaper was seen as a signal that the regulator would step in to underpin the market after a 14.3 per cent annual drop last year. The tightened monetary policies since last year spooked investors, most of whom were taking a wait-and-see attitude amid sluggish trading.
The CSRC has been silent since the monetary tightening, though the benchmark Shanghai index was the world's third-worst performing indicator last year. 
'It remains questionable that a bigger cash payout could spark a rally,' said Haitong Securities analyst Zhang Qi. 'It looks like a tactic rather than a policy with substance.'
Mainland companies distributed cash dividends worth 388.9 billion yuan (HK$462.1 billion) in 2009, accounting for 31 per cent of the total profits they made.
The distribution of profits to shareholders was far from sufficient, analysts said. In Western markets, listed companies normally give 40 to 50 per cent of distributable profits to shareholders.
The state-owned companies have long been known as tight wads  because the major shareholders, or the state-controlled parents of the listed arms, are reluctant to reward investors with big cash dividends.
However, millions of retail investors still flock to the equity market, believing they can get rich overnight through volatile trading.
In 2009, investors' equity trading costs amounted to 175 billion yuan, including 123 billion yuan of brokerage fees and 52 billion yuan of stamp duty tax payments. The figure represented nearly half the total dividend income. In addition, investors are charged a 20 per cent dividend tax before they get the cash.
'The talks of increasing dividends proves a clich?' said Dazhong Insurance fund manager Wu Kan. 'Investors don't reap any return from their equity investments if they can't trade shares on premium.'
In 2008, the CSRC required companies looking to place shares on the stock market to pay at least 30 per cent of their annual distributable profits to shareholders over three years before applying for a refinancing, an apparent effort to boost investor confidence. The requirement was raised from the previous 20 per cent.



Incentives for bosses to raise dividends