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April 10, 2017

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CSRC vows to punish stingy ‘iron roosters’

CHINA’S top securities regulator has urged listed companies to reward investors with cash dividends, vowing to punish stingy “iron roosters.”

Liu Shiyu, chairman of the China Securities Regulatory Commission, also warned listed firms against raising money for blind investments, or designing complicated share structures that facilitate insider trading and other malpractices.

“Paying cash dividends is a basic way to reward investors ... and the ultimate source of a stock’s intrinsic value,” Liu told a meeting of the China Association for Public Companies.

The CSRC will take “tough measures” against “iron roosters” who haven’t plucked a single feather for many years, even though they have the ability to pay dividends, Liu said.

Rejecting the view that the share price of a growth company will rise even without cash dividends, Liu said a company’s growth is far from certain, so buying a stock with no dividend would be merely a game of “passing flowers until the drum beat stops.”

“Steady and stable cash dividend payout often signals healthy financial and operational conditions of a listed company,” Liu said.

“On the contrary, if a company doesn’t pay dividends with no proper reasons, it could be the signal of accounting fraud or mismanagement.”

He also criticized some companies, without naming them, for forging financial information, engaging in fraudulent restructuring, and cashing out after driving stock prices high at the cost of retail investors’ interests.

Listed firms that engage in “illicit practices” on the stock market should “pay a heavy price,” Liu said.

He reiterated that the CSRC remained committed to protecting the rights and interests of retail investors, who dominate China’s stock market.

China has over 3,100 listed companies, with a combined market value exceeding 50 trillion yuan (US$7.2 trillion).

Listed firms should play an active role in the implementation of national strategies and avoid blind expansion into non-core business, Liu told the meeting.

He stressed good corporate governance and full information disclosure, saying credit records should be built for company directors and management.

Liu, installed as CSRC head following the 2015 stock market crash, has prioritized investor protection, cracked down on market manipulation and tightened disclosure rules.


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