China’s regulator gets tougher on firms for major law breaches and frauds, sending ‘special treatment’ stocks tumbling
- A gauge of shell companies slump after the stock exchanges release new rules on delisting
Mainland Chinese companies tarnished by regulatory breaches or two straight years of losses fell on Monday, as regulators ratcheted up efforts to crack down on wrongdoings among listed firms and speculative trading with tougher delisting rules.
A gauge tracking 86 such companies on the Shanghai and Shenzhen bourses dropped as much as 1.5 per cent on Monday before closing 0.4 per cent lower, while the benchmark Shanghai Composite Index advanced 0.9 per cent. The Shanghai and Shenzhen exchanges said on Friday night that they will for the first time force companies that commit major violations, such as endangering state security, public safety, ecological safety and work safety to delist, effective immediately.
Among the decliners, Tianma Bearing Group, Shandong Longlive Bio-technology and China Security & Fire all slid by the 5 per cent daily limit, the maximum movement allowed for the “special treatment” (ST) stocks – the group of companies that have suffered two straight years of losses, have unusual financial conditions or have been fined for regulatory violation.
“The regulator isn’t too happy about the heavily speculative mood on the ST sector,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The case of Changsheng Bio-technology offers a perfect case for the regulator to roll out tougher rules on delisting.”
The unveiling of the supplementary delisting rules is a follow-up measure in response to the severe law breaches by Shenzhen-listed Changsheng Bio-technology, which was found in July to have falsified data on rabies vaccines and has drawn the attention of President Xi Jinping who ordered a thorough probe into the case.
Even as Changsheng lost almost a total of 90 per cent of its market value over the past six months, the stock has seen frantic trading recently, with the share price jumping 41 per cent over the past seven days. The company has been suspended from trading since Monday pending the Shenzhen exchange’s final decision on whether to cancel its listing status.
