Call for listed firms to pay dividends

PUBLISHED : Tuesday, 20 December, 2011, 12:00am
UPDATED : Tuesday, 20 December, 2011, 12:00am


An adviser to the mainland's central bank has urged regulators to require listed companies to pay cash dividends, saying it must be a priority if Beijing is to improve its ailing stock market.

Prominent economics professor Li Daokui, a member of the central bank's monetary policy committee, told a financial forum in Beijing that the absence of a dividend policy was a major corporate governance problem, China National Radio reported.

'Public companies have raised funds and spent them on investment without paying a return to the investors,' Li said. 'A rule to force them to distribute enough cash dividends should be published.'

The adviser's remarks followed similar comments by Chongqing mayor Huang Qifan this month, a fresh sign that regulators may try to step in to restore investor confidence in the bearish market.

Retail investors have suffered severe losses as the mainland's benchmark stock index has fallen back to the level of 10 years ago, even though the country's economy has been on a fast track for the past decade.

Two-thirds of mainland investors who responded to a Sina survey said they lost more than 20 per cent of their equity investments this year.

The finding just adds to investor anger towards the mainland regulators because fast-tracked initial public offering approvals had diluted existing holdings.

But Li said he thought cash dividends could be an answer to the troubled market.

Stock investors should share the profits generated by listed firms, rather than trying to trade shares to make money, he said. On the mainland, there is no rule that requires public companies to pay cash dividends.

Only companies looking to issue additional shares in refinancing deals are forced to pay at least 30 per cent of their total profits in the previous three years in dividends before they are eligible for share placements.

The Chongqing mayor said listed companies should be required to distribute at least 30 per cent of profits to investors even if they had no plans to raise additional funds.

According to Shanghai Stock Exchange chairman Geng Liang, dividends paid out by Shanghai-listed companies represented about 23 per cent of their total profits.

Haitong Securities analyst Zhang Qi said: 'You can whet investors' buying appetite by sharing more profits with them. A stock market isn't a stock market if listed firms refuse to distribute enough dividends to investors.'

The statements by Li and Huang cemented investor belief that Guo Shuqing, the former China Construction Bank chairman who was appointed chief of the China Securities Regulatory Commission in late October, would take drastic action to safeguard the interests of retail investors.

Mainland media have reported that Guo is considering drawing up new rules to benefit retail investors, including urging larger cash dividends.

Ensuring market stability is seen as a political task by the securities regulator because millions of individuals invest years of savings in the volatile stock markets.