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China moves to encourage stock buyback to boost A-share market

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Chinese regulator is planning to encourage public companies to repurchase stocks, according to a revised draft amendment on China’s Company Law, released on Thursday, which is viewed as a move to boost the country’s struggling A-share market.

The China Securities Regulatory Commission and other related regulators said China will allow public companies to conduct stock buybacks in more situations, will work to improve the decision-making process to facilitate a stock buyback and set up a treasury stock system.

Under the plan, companies could repurchase stocks in more situations, including for employee stock ownership plan, for convertible bond sales, for warrants sales and for protecting the companies’ creditability and shareholders interests.

In addition, the regulator said it would set up a treasury stock system. Treasury stock is outstanding stock repurchased from stockholders by the issuing company but not outstanding and are not included in the calculation of dividends or earnings per share.

Stock buybacks in the A-share market have been on the rise this year. A total of 478 companies listed in Shanghai Stock Exchange or Shenzhen Stock Exchange have spent 23.61 billion yuan repurchasing 3.325 billion shares, according to data from the Wind Information.

That has surpassed the total amount of 9.196 yuan spent on stock repurchases by 382 companies in the whole year of 2017.

The move comes amid a downturn in China’s A-share market. The benchmark Shanghai Composite Index has declined 17 per cent year-to-date and hit a 2 1/2-year low last month.

The gauge is trading 0.3 per cent lower to break through the critical psychological line of 2700, as 1:52 pm local time.

 

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