State-owned Enterprises

Beijing drafts dividend tax to boost market

PUBLISHED : Tuesday, 30 October, 2012, 12:00am
UPDATED : Tuesday, 30 October, 2012, 4:25am

Beijing's securities watchdog is set to unveil a new dividend policy scheme to support the lacklustre market as part of the government's campaign to end the losing streak of equities.

The move is the latest in a series of measures by Beijing in recent weeks to rejuvenate the world's second-biggest economy by trying to ensure that financing activity in the stock market remains afloat.

The China Securities Regulatory Commission, the country's industry watchdog, is planning to introduce a divided tax scheme that would tax investors based on their holding period.

The regulator's aim is to discourage short-term investing. But, domestic fund managers are unimpressed by the policy, saying mainland-listed firms were seriously lacking in terms of proper payout and dividend policies for investors.

In addition, some executives of state-owned enterprises (SOEs) often failed to ensure stability and sustainability for ordinary investors and did not put a priority on a dividend policy.

"In most cases, the State Council or the government is the biggest stakeholder of those SOEs and have little concern for the interests of other investors," a Shanghai-based fund manager who runs a US$500 million equity portfolio said yesterday.

The fund manager said the cash payout ratio of listed companies on the mainland was consistently low, probably because the constraints on listed stocks and overall returns on investment were fairly low.

"A handful of listed firms are reluctant to bolster confidence and loyalty to existing stakeholders by having a transparent risk-and-reward compensation structure and sound corporate governance, which could help to put the market on a solid footing over a longer run," an investment director at Haitong Asset Management in Hong Kong said.

Guo Shuqing, who was appointed the regulatory commission's head a year ago, has repeatedly called for market reform, such as a crack down on insider trading and opening up the mainland's financial industry to foreign competitors.

Yet, expectation of drastic reform in the country's capital market is low in the midst of the once-a-decade political transition, which gets under way next week.