China Clarifies New Delisting Rules, Calming Market Fears

China's securities regulator clarifies new delisting rules, calming market fears and signaling efforts to strengthen oversight while maintaining investor confidence.

Dil Bar Irshad
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China Clarifies New Delisting Rules, Calming Market Fears

China Clarifies New Delisting Rules, Calming Market Fears

The China Securities Regulatory Commission (CSRC) has sought to allay investor concerns about new delisting rules targeting "zombie" companies and "bad actors" in the market. The regulator clarified that the tighter rules would not ignite a wave of delistings and that only about 30 companies would be delisted next year under the new regulation.

This announcement helped calm the market panic following a sell-off in small-cap shares, with the Chinese small-cap CSI 2000 INDEX surging 5.5% by midday on Wednesday. The CSRC's move aimed to address fears and provide reassurance to the market regarding the potential impact of the new delisting rules on Chinese companies listed in the US.

The CSRC estimates that more than 80 companies would be affected by the higher dividend requirements, putting them under special treatment, but not leading to delistings. Another 100 companies could risk being delisted by the end of 2025, but they still have more than 18 months to improve themselves to avoid such a fate.

Why this matters:The explanation from the CSRC is significant as it helps stabilize the market and alleviate concerns among investors about the potential delisting of a large number of Chinese companies from US stock exchanges. The move also demonstrates China's efforts to strengthen market oversight and weed out poorly performing companies while maintaining investor confidence.

The amended rules are not expected to lead to a surge in delistings in the near term, according to the CSRC. The regulator emphasized that the new delisting rules are aimed at "weeding out 'zombie shell companies' and 'black sheep'," but not targeting small-caps. The move to reinforce the delisting mechanism is not new, as China has had 27 delisting scenarios since 2014, but few companies were actually delisted in that period.

Meanwhile, UBS has upgraded its 2024 real GDP growth forecast for China to 4.9% from 4.6% due to better first-quarter economic data and a stronger export outlook. The Shanghai Composite index, China's blue-chip CSI300 index, and smaller indexes such as the Shenzhen index, the start-up board ChiNext Composite index, and Shanghai's tech-focused STAR50 index all saw gains following the CSRC's explanation about delisting rules.

Key Takeaways

  • CSRC clarified new delisting rules won't lead to a wave of delistings, only ~30 next year.
  • CSRC estimates over 80 companies affected by higher dividend requirements, 100 risk delisting by 2025.
  • New rules aim to weed out "zombie" and "bad" companies, not target small-caps.
  • UBS upgraded China's 2024 GDP growth forecast to 4.9% due to better Q1 data and export outlook.
  • Chinese stock indexes gained after CSRC's explanation on delisting rules, easing market concerns.