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China plans to let workers choose for as much as 30 percent of their wages to be paid in the shares of their publicly-traded employers as regulators broaden measures to boost investor confidence in the stock market.
The stock used to pay employees must be acquired from the secondary market, according to draft rules posted on the China Securities Regulatory Commission’s website yesterday. Employees who receive shares as salaries or bonuses would have to hold them for at least 36 months.
The securities regulator, in the week following a July 31 pledge by the Communist Party’s Politburo to continue adjusting policies to ensure growth, has cut trading fees for stocks, expanded a trial for over-the-counter exchanges and allowed futures companies to start asset management businesses. China’s stock market is the worst performing this year among the four largest emerging economies.
“It is not only necessary but also timely now to start employee shareholding programs at listed companies,” the CSRC said in a statement yesterday accompanying the draft. Such programs will allow “the optimal allocation of society’s capital through the capital market.”
The benchmark Shanghai Composite (SHCOMP) index has fallen 13 percent from this year’s high on March 2 amid concern that China’s economic slowdown is deepening as Europe’s debt crisis worsens. The index has lost 2.7 percent this year, compared with gains in Brazil, India and Russia.
The regulator’s “intention to stabilize the Chinese stock market will boost investors’ confidence in the long term,” Fanny Chen, an analyst at Haitong International Research in Hong Kong, wrote in a report distributed today about the reduction in trading fees.
No more than 10 percent of the total shares of listed companies may be paid to employees, according to the CSRC draft, which marks an extension of rules introduced in 2006 that allowed publicly traded companies to pay senior managers with shares. Employee share programs must be managed by third parties such as trust firms, asset management arms of insurance companies, securities firms and fund management companies, the regulator said.
Guo Shuqing, who took over as chairman of the CSRC last year, has urged companies to pay more cash dividends and changed how initial public offerings are priced. China’s equity and bond markets “seriously” lag behind the demands of the real economy, Guo said in a March interview with the official People’s Daily.
The Securities Times newspaper last month also cited Guo as saying that listed companies should “pro-actively” seek to produce returns for investors.
In June, China began a pilot program allowing smaller companies to sell high-yield bonds through private placements. The State Council approved the expansion of an OTC market in Beijing’s Zhongguancun Science Park to three additional high- tech zones in the cities of Shanghai, Wuhan and Tianjin, the China Securities Journal reported on Aug. 3.
The official Xinhua News Agency also reported Aug. 2 that China may also cut stamp duty on share trading. The state-run news service reported today that no arrangement for such a cut had been made for the near term. Both reports cited China’s securities regulator.
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