Delisting reforms to streamline capital markets

An investor checks stock prices at a brokerage in Shenyang, capital of Liaoning province. [Photo provided to China Daily] 

The revised delisting rules for listed companies will improve the ecosystem of China's capital markets and pave the way for the country's high-quality economic transformation, analysts said.

The Shanghai Stock Exchange and the Shenzhen Stock Exchange published draft documents for consultation late on Monday, with proposed reforms of delisting criteria, channels and processes.

The move is another push by the country to carry out capital market reforms, following the implementation of the registration-based initial public offering mechanism.

According to the new rules, companies will be automatically delisted from stock markets if closing prices of their shares remain below 1 yuan (15 cents) for 20 consecutive trading days or if their closing market value falls below 300 million yuan for 20 consecutive trading days.

Those reporting net losses and operating revenues of less than 100 million yuan for two consecutive years will also be delisted.

After the delisting processes begin, suspensions and resumptions of listings will be halted. Delisting periods will be shortened to 15 trading days from the current 30 days and there will be no trading limits on the first day of the period.

A spokesperson for the Shanghai Stock Exchange said on Monday that by further perfecting delisting indicators and shortening delisting processes, the new rules will enhance the efficiency of delisting and help create a market ecosystem in which "the fittest survive".

A total of 19 companies have been delisted from Chinese mainland bourses so far this year, according to financial information service provider iFinD.

"While the registration-based IPO mechanism deals with the problem of 'coming in', the delisting rules tackle the problem of 'going out'," said Xie Yaxuan, chief analyst at China Merchants Securities.

"Only when the process of 'coming in' and 'going out' becomes smooth can we ensure that listed companies that remain in the capital markets are those with true investment value."

The new rules are also in line with China's needs for economic transformation with promising "new economy" companies expected to gain more value. Those that do not fit with the country's high-quality development are expected to be weeded out, Xie said.

Yang Delong, executive general manager of Shenzhen, Guangdong province-based First Seafront Fund, said perfecting the delisting system is a key requirement of the revised Securities Law, which took effect in March this year, and is an important move to promote long-term and healthy development of the A-share market.

The new rules will inject fresh vitality into China's capital markets, Yang said.

Chinese stocks closed mixed on Tuesday, with the benchmark Shanghai Composite Index edging down 1.89 points, or 0.06 percent, to finish at 3367.23 points.

The Shenzhen Component Index closed up 71.18 points, or 0.52 percent, at 13763.31 points. The ChiNext Index, China's NASDAQ-style board of growth enterprises, added 32.25 points, or 1.18 percent, to end at 2758.85 points.