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New Rules to Protect Interests of Minority Stockholders

By Zhi Ming

China's stock regulators made it clear that they are seriously protecting the interests of public investors.

The China Securities Regulatory Commission issued regulations on Tuesday giving minority stockholders the ability to influence major decisions in listed companies.

Under the new rules, a listed company cannot make a major business move without the approval of at least half of tradable share holders.

Listed firms that plan to issue new shares and convertible corporate bonds, restructure assets or list subsidiaries overseas will also need the green light from at least half of the minority stockholders.

They should also provide shareholders an Internet platform to attend general shareholder meetings and online voting abilities.

The new rules were spurred by the "split equity structure" of the Chinese stock market.

About one-third of the shares of listed companies are tradable shares while the rest are non-tradable ones controlled by the State and legal persons. The situation often puts small public investors at a disadvantage during the corporate decision-making process.

Without solving the problem, small public investors cannot be put on an equal footing with controlling holders.

The new rules undoubtedly mark progress.

Punishment for rule-breakers should be strengthened to make the new rules effective rather than symbolic.

While they stipulate a floor on the proportion of public investors necessary for major corporate decisions, past experience shows the controlling stockholders are able to devise ways to sidetrack the small investors.

But a task more challenging than drafting the rules is how to enforce them.

A way out may be ordering listed firms to fully open up relevant information to the public.

It is encouraging that regulators have included this in the new rules.

Then, if they find any listed firms break the rules, regulators must mete out severe punishment. They need to be made conscious that gains from cheating are not enough to make up for fraud.

One of the lessons we have from the bearish market of the past two years is that leniency only brews malice.

(China Daily December 9, 2004)

Rules Issued to Protect Rights of Minority Stockholders
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