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Many policies previously approved by the China Securities Regulatory Commission (CSRC) came into effect in the new year.These reforms should help increase investor confidence, according to China Securities Journal.
Last month Societe Generale’s Wei Yao wrote that despite reports that reforms were unlikely after the handover of power, it looked increasingly likely that Xi Jinping would reform China.
The new policies include:
- Measures for the supervision and administration of unlisted public companies[published October 11th 2012]. This is the first law to supervise unlisted public companies i.e. companies that can have unlimited shareholders but are too small to be listed on a stock exchange. It allows shares of unlisted public companies to be “publicly transferred in stock exchanges duly established abiding by the laws”, and allows for more than 200 shareholders.
- Notice on implementing differentiated income tax scheme on the dividend of listed companies [published November 16th 2012]. Under this policy the dividends on shares of listed companies through “public offerings or transfers will be assessed at differentiated tax rates based on the lengths of holding periods,” according to China Securities Journal.
- Interim provisions on strengthening the supervision over the securities investment consulting business conducted by utilising “stock recommendation software” [published December 5, 2012]. This prevents any company or individual without the qualifications to practice securities investment consultancy from using stock recommendation software.
- Notice on issues regarding furthering the reform of the fund review regime [published December 13, 2012]. This involves a change in the fund review process. Companies can now report the number and types of funds based on market demand which shortens the time for fund review. It also launched an online application and review system for fund products on January 1.
- Rules for corporate governance of securities companies [published December 14, 2012]. “A securities company shall have the obligation of good faith for clients, and shall not infringe upon the property right, the right to choose, the right to fair trade, the right to know and other lawful rights and interests of clients,” according to China Securities Journal.
- Guidelines for supervising the application documents and examination procedures for overseas stock issuance and listing by joint stock companies [December 20, 2012]. This makes it easier for domestic companies to issue stocks abroad, and it also allows joint stock companies to independently file applications for share offerings
While changes to the capital controls are very welcome, investors should probably heed Yao’s warning that the path of rebalancing will be bumpy and while the impact of good reforms is positive for business, consumers and investors, it is “not entirely positive for short- term growth.”