Move seen as extraordinary but China is desperate to breathe life back into sinking stock markets China may allow listed companies to buy back their shares on the open market for the first time, in an effort to arrest sinking stock prices and boost investor confidence. Share buy-backs have long been banned on Chinese stock markets in order to prevent price-rigging. Lifting the ban is seen as an extraordinary measure to rejuvenate the markets, which have languished for years and have been hovering near eight-year lows this month. Yet the release of provisional rules by the China Securities Regulatory Commission late on Monday night had little lasting effect on the market. A 50 per cent rise in trading turnover yesterday largely reflected day-trading and profit taking from gains early in the trading day. The Shanghai Composite Index fell another 0.33 per cent, leaving it down 18.6 per cent since the beginning of the year. According to Yao Maogong, a division general manager at Shanghai Securities, the commission's buy-back initiative 'is a solution in a no-solution situation'. 'Nonetheless, it is still a market-boosting measure and converges with international practice.' Under the rules, Chinese companies must have been listed for at least one year and be free from market violations in order to qualify for share buy-backs. One incentive for companies to buy back their shares in a plunging market could be a proposed exemption from the free-float requirement found in the provisional rules. Companies that found themselves owning more than 30 per cent of outstanding shares would no longer need to make a general offer, provided the excess shares were acquired on the open market. Buy-backs must take place within a specified three-month period, during which companies will be barred from undertaking equity fund-raising exercises. Some welcome the rules as a means to reduce volatility in the markets. 'When quality companies are permitted to buy back their own shares, that can serve to prevent stock price fluctuations,' said Boshi Fund Management, which manages more than 29 billion yuan of assets. Han Xianwang, who heads GTJA Allianz's research department, said share buy-backs would help companies boost asset values and earnings per share as their outstanding share capital shrunk. Share prices at many of China's 1,377 listed companies have sunk to below their net asset value in a protracted market slump, although companies on Shanghai's A-share market still trade at an average of about 16 times earnings. 'Buy-backs are one additional option for companies to improve their value and [shareholding] structures,' Mr Han said. Beijing has been struggling to arrest a stock market decline that hit new lows after regulators launched a pilot scheme to dispose of non-tradable shares last month. Instead of removing overhang, the scheme has added even more uncertainty to the markets, which have been struggling since the first attempt to float non-tradeable shares in 2001. A recent People's Bank of China survey on urban saving trends released yesterday found that only 5.6 per cent of 2,000 respondents said it was worthwhile investing in stocks, a 5 percentage point drop from a year earlier. By contrast, 17.3 per cent of the respondents preferred bonds.