Firms shore up profits to avoid ejection from China's stock exchanges

Seven out of 10 habitually loss-making firms traded on the mainland expect to post profits for last year as they attempt to shore up earnings to avoid delisting.

According to the state-owned Securities Daily, 70 per cent of the 100 "special treatment" firms that have published their forecast performances for last year said they would turn to profits.

The result could embarrass the chairman of the China Securities Regulatory Commission, Guo Shuqing, who has promised to expel underachieving firms from the stock exchanges as a way to safeguard investors' interests.

Special treatment firms are those companies that report losses for two years in a row. They could face delisting if their results are in red ink for a third consecutive year.

The Shanghai and Shenzhen stock exchanges published new delisting rules in April last year to toughen controls over the loss-makers.

Under the rules, underachieving firms could no longer count on exceptional gains to avoid delisting, as the bourses would look at their underlying profits to decide whether these firms could maintain their listing status.

But the two exchanges waived the rules in July, phasing out the criterion on one-off gains and letting firms rely on the profits derived from one-off deals to avoid delisting.