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China Securities Regulatory Commission, State-owned Assets Supervision and Administration Commission, Ministry of Finance, People’s
Bank of China, Ministry of Commerce
Guiding Opinions of the CSRC, SASAC, MOF, PBC, and the MOFCOM on Share-trading Reform of Listed Companies
Zheng Jian Fa [2005] No. 80
August 23, 2005
Since the promulgation of the Some Opinions of the State Council on Promoting the Reform, Opening and Steady Growth of Capital Markets
(hereinafter referred to as Some Opinions), vital progress has been made in the various reform and system building of the capital
market, the market operating mechanism and operating environment are improving, and some fundamental and systematic problems that
restrict the full play of functions of the capital market are being solved step by step. In light of the requirements of the State
Council for “solving share-trading problem positively and steadily”, and under the right leadership of the State Council and the
great support of the relevant departments and local people’s governments, the pilot work for share-trading reform has been completed
smoothly, the operating rules and basic practice of the reform have won the recognition of the markets. Policy expectation and market
expectation on the reform are becoming increasingly stable, which has laid a solid foundation and created good conditions for overall
steady and positive shifting of the reform. We hereby bring forward the following guiding opinions on share-trading reform of listed
companies for the next step.
I.
Correctly Understanding the Share-trading Reform
1.
To implement the Several Opinions in an all-round way and perfect the operating mechanism of capital market, we shall, for the purpose
of solving the fundamental and systematic problems, attach high importance to perfecting and bringing into play the function of capital
market, improve the level of investment returns of capital market, and improve the direct financing ability and the efficiency of
resource allocation step by step. We shall not only solve the problems of lack of new market elements, imperfect systems, irregular
operations and inefficient supervision of the emerging market through perfecting the capital market system, diversifying securities
investment products, improving the quality of listed companies, and regulating the management of securities companies as well as
strengthening the legal construction of the securities market. We should also solve share-trading problems left over under the background
of system transition and other various problems and properly solve hidden risks so as to create the desired conditions for the long-term
and steady development of capital market.
2.
Share-trading (the different disposal of equity shares) refers to the distinction of the shares of listed companies in the A shares
market are into non-tradable and tradable shares according to whether they can be listed for trading in the stock exchange. This
is a special problem coming into being during the transition of economic transition of our country. The different disposal of shares
has distorted the pricing mechanism of the capital market, and restricted the effective play of resource allocation functions thereof.
The price of the such stocks of listed companies cannot work as a market-based incentive and restriction for majority shareholders
and the management team so that there is no common basis of interest in corporate governance. For such stocks there are two kinds
of prices in capital flow: the negotiated price for the transfer of non-tradable shares and the competitive transaction price of
tradable shares, so there lacks a market operating basis for capital operations. The different disposal of stocks in this context
cannot meet the need for the reform and opening-up and stable development of the capital market, so we shall eliminate the difference
between tradable shares and non-tradable shares through the share-trading reform.
3.
Share-trading reform is a kind of reform for the purpose of perfecting the basic market system and operating mechanism, the significance
of which is not only to resolve historical problems, but also to create conditions for various other reforms and system innovation
of the capital market, it is an important measure for the overall implementation of the Several Opinions. Therefore, we shall give
overall consideration to the share-trading reform, maintenance of the market stability, promotion of the play of capital market function
by means of pushing forward the opening-up in a positive and steady way. The reform shall be pushed ahead positively and steadily
and step by step. No listed company may carry out such reform until it has met the requirements so as to realize the reasonable adjustment
of the interest relationship of all parties concerned. Meanwhile, we shall take the reform as a turning point, adjust various positive
factors, maintain the market stability, improve the quality of listed companies, regulate the management of securities companies,
and promote the construction of various fundamental systems, perfect the market system and promote the innovation of securities products
with other supportive systems, so as to form a new situation of good circulation and healthy development of the capital market.
4.
The share-trading reform that is now under way is to solve the systemic problems we encounter in the listing and trading of non-tradable
shares rather than to sell State shares through the capital market, and the State does not consider selling the State shares to raise
funds through the domestic capital market. After the listing and trading of non-tradable shares, the controlling shareholders of
the state-owned shareholding listed companies shall, according to the strategic requirements of the State for the overall arrangement
of the national economy and the structural adjustment, determine reasonably the minimum proportion of shares of the listed companies
under its control, and for the important industries and major fields concerning the nation’s economy and the people’s livelihood
and the life line of the national economy, and the state-owned share-holding listed companies in the fundamental and backbone industries
of the national economy, the state shall ensure the controlling power, influence and motivation of state-owned capital, and the shareholders
of state shares may buy shares in the securities market, if necessary. The controlling shareholders in other listed companies shall
also ensure the stable growth and sustainable management of the companies. The securities regulatory department shall, through necessary
systemic arrangement and technical innovation, effectively control the scale and pace for the tradable shares to enter into circulation.
II.
Guidelines for the Share-trading Reform
5.
The guidelines for positively and steadily pushing forward the share-trading reform are: to stick to the general principles of combining
the share-trading reform and the maintenance of stable development of market, further clarify the expectations of the reform, ameliorate
and strengthen coordination and guidance, mobilize various positive factors to implement the various tasks posed by the Several Opinions
as soon as possible, to formulate, amend and perfect the relevant regulations and policies and measures, strengthen the infrastructure
construction of market, improve the market environment of reform and development to realize an important breakthrough in the capital
market, so as to have the market operating on the track of sound progress.
6.
We shall implement the general requirements of the Several Opinions, that is, “observing market rules, being conducive to market stability
and development, and earnestly protecting the lawful interests of investors, especially those of the public investors”. To observe
market rules is to stick to the decision-making mechanism and price formation mechanism based on market rules, improve the reform
driving mechanism, and form a sustainable and steady motivation for the reform of listed companies through policy support and market
guidance. To be conducive to market stability and development is to pay attention to bringing into play the mechanism advantages
and sound market effect formed through reform in light of the principle of unanimous agreement of progress of reform, speed of development
and sustainability of market, so as to ensure that the various reforms of the capital market are pushed in coordination, ensure that
the various policies and measures are integrated and in conformity with each other, and promote the steady development of the market
through reform, and ensure the smooth going of the reform based on the stable development of the market. To protect the lawful interests
of investors, especially of public investors is to ensure the investor’s right to know, right to participate and right to vote through
relevant procedural rules and necessary policy guidance, so as to turn the reform scheme into a basis of mutual interests conducive
to the shareholders of tradable shares and non-tradable shares, and form a stable price expectation of the companies after the reform.
III.
Overall Requirements for the Share-trading Reform
7.
Unified organization shall be stuck to for the share-trading reform. The China Securities Regulatory Commission shall formulate the
Measures for the Administration of Share-trading Reform of Listed Companies, and shall, in light of the operating procedures and
regulatory requirements of “Openness, Fairness and Justness”, regulate the work for share-trading reform to ensure the lawful interests
of investors, especially of the public investors. The relevant departments of the State Council shall strengthen coordination and
cooperation, and shall, in light of the principle of being conducive to pushing forward the share-trading reform, perfect the relevant
policies for promoting the steady development of the capital market, adjust and improve the provisions on such aspects as the management
of state-owned capital, enterprise examination, accounting, credit policy, and foreign investment, and etc., so as to ensure that
the relevant policies of share-trading reform are interconnected and in conformity with each other. The local people’s governments
shall strengthen organization and guidance to the share-trading reform of listed companies within their own regions, bring into full
play the role of comprehensive resource advantage, and combine the share-trading reform and optimization of the structure of listed
companies, the promotion of regional economic development and maintenance of social stability, and plan as a whole the reform work
adapted to the local conditions.
8.
A decentralized decision-making mechanism shall be applied to the share-trading reform scheme. The non-tradable shareholders of listed
companies shall, according to the existing laws, regulations and the measures for the administration of share-trading reform, widely
solicit the opinions of the relevant tradable shareholders of the A shares market, and determine through negotiation the share-trading
reform scheme that complies with the actual situation of their own companies, and shall, by referring to the procedures of shareholders’
meeting, carry out classified votes by convening meetings of relevant shareholders of the A shares market. It is a beneficial trial
of the share-trading reform for non-tradable shareholders and tradable shareholders to balance the interests of the shareholders
by way of consideration, which shall be improved incessantly in the practice of reform.
9.
The share-trading reform scheme of listed companies shall be conducive to the market stability and the long-term development of listed
companies. Companies or majority shareholders are encouraged to take relevant measures for stabilizing price expectations and to
make regrouping arrangements for improving the performance and price increment ability of listed companies in the share-trading reform
scheme. The regulatory department and the stock exchanges shall, under the precondition of not interfering the determination of the
subjects of reform on reform scheme through self-negotiation, strengthen coordination and guidance to the form of realization of
the scheme and the relevant supportive arrangements.
10.
The market-oriented guidance of the reform shall be observed and attention shall be paid to creating a market mechanism for positively
and soundly solving the share-trading issue. We shall, according to the progress of the share-trading reform and the overall market
conditions, choose the right time to apply the policy of “separating the new from the old”, and shall not differentiate tradable
shares and non-tradable shares for companies that make initial public offerings. Listed companies that have completed the share-trading
reform shall be given priority in refinancing, and may implement the incentive of stock rights to their management team, meanwhile,
the ways of supervision over refinancing shall be reformed so to improve the efficiency of refinancing. The concrete measures for
implementing and examining the stock-right-based incentive to the management team of listed companies and the supportive supervision
system shall be formulated by the securities regulatory departments together with other relevant departments. For a company to be
listed overseas that have A shares, and a subsidiary company of a listed A share company which is listed on an overseas stock market,
the listing shall be made after the share-trading reform is completed. For the transfer of non-tradable shares of listed companies
by negotiation, an arrangement on the share-trading reform shall be made correspondingly, or the transfer shall be operated together
with the share-trading reform of the company.
11.
We shall properly handle the share-trading reform issue of listed companies that are special situations. The share-trading reform
is to solve the issue of balancing the interests of the relevant shareholders of the A share market. For listed A share companies
that concurrently hold H shares or B shares, the share-trading issue shall be solved by the relevant shareholders of the A share
market through negotiation. For listed A share companies of the category of bank which hold the documents of approval for foreign-funded
enterprises or which have foreign capital shares, the share-trading reform scheme thereof shall, after being adopted by relevant
shareholders’ meeting through voting, be subject to the examination and approval of the relevant departments of the State Council
according to the relevant laws and regulations. The alteration of foreign capital shares in a share-trading reform scheme shall not,
in principle, affect the relevant preferential policies enjoyed by the listed company. If a foreign shareholder sells its shares
after the expiry of the time limit for selling shares, it shall be handled according to the relevant state provisions, with the concrete
measures to be prescribed by the competent department of commerce of the State Council and the securities regulatory department together
with other relevant departments in addition. Companies with poor performances are advised to solve their share-trading issue through
absorbing high-quality assets and bringing in foreign strategic investors as a consideration.
IV.
Regulating the Order of Share-trading Reform in a Strict Way
12.
A listed company and its board of directors shall carry out its share-trading reform in strict accordance with the procedures as prescribed
in the management measures, carefully perform information disclosure obligations, and earnestly maintain the investors’, inter alia,
the public investors’ right to know, right to participate and right to vote. Public investors shall positively take part in the share-trading
reform, and exercise shareholders’ right according to law. Non-tradable shareholders shall strictly fulfill their commitments in
the share-trading reform, and assume corresponding liabilities for breach of contract.
13.
Recommending institutions and their recommendation representatives shall be honest and faithful, just, objective, and diligent, shall
fulfill their duties, and shall know of the various problems of the companies, bring into full play the role of coordination and
balance, carefully perform their checking obligations, and assist the listed companies and their shareholders in formulating their
share-trading reform schemes that comply with the actual conditions of the companies, urge them to do a good job of information disclosure,
and urge and guide the relevant parties concerned to fulfill their commitments in the reform scheme. Necessary regulatory measures
shall be taken against any recommending institution or any of its representatives that fails to fulfill its recommendation obligations.
14.
Any fund management company, securities company, insurance company, capital management company or any other institutional investor
shall take an active part in the share-trading reform, and take initiatives to maintain the investors’, in particular, the public
investors’ lawful interests and the long-term interests for the steady growth of the market. For any institutional investor who disturbs
the normal decision-making of other investors, manipulates the voting results of relevant shareholders’ meeting, or make interest
tradeoffs by making use of the advantage of shares it holds, the regulatory institution shall make an investigation and give punishment
on it in a strict way.
15.
A stock exchange shall bring into play its flexibility of being close to the market as a self-disciplinary organization and the functional
advantages in organizing market and product innovation, strengthen coordination and guidance to the form of realization of reform
scheme of listed companies and the regrouping measures, and shall, together with the securities depository and clearing agencies,
provide technical support to the innovation of their reform schemes and to the market system and product innovation after the reform.
16.
We shall strengthen supervision over listed companies and their controlling shareholders, recommending institutions, fund management
companies, and the associated parties and senior management personnel of the said institutions so as to prevent and strike down the
illegal and criminal acts of cheating, insider trading and market manipulation by taking advantage of share-trading reforms.
17.
The news media shall stick to the accurate direction of public opinion, positively publicize the significance of share-trading reform,
and report the reform progress and the relevant information objectively and truthfully, observe the discipline of press, and do a
good job of guiding the public in a right way.
V.
Mobilizing Various Positive Factors to Promote the Steady Growth of Capital Market
18.
We shall, taking share-trading reform as a turning point, promote the listed companies to improve their corporate governance structure,
improve the level of corporate governance, and earnestly solve the issue of appropriation of the capital of listed companies by controlling
shareholders or by actual controllers, and curb the guaranty of listed companies which is in violation of any regulation, and prohibit
misappropriating the interests of listed companies by making use of non-bona fide connected transactions. After solving the share-trading
issue, well-managed large companies are encouraged to get listed as an integrated whole through issuing directional shares by the
listed companies under their control; and listed companies are encouraged to consolidate through merger or acquisitions to improve
their performance.
19.
Capital support shall be given to listed companies for their majority shareholders to buy shares through such ways as loans pledged
by shares of majority shareholders, issuing short-term financing securities, bonds, and by other commercialized ways. We shall combine
the share-trading reform, the optimization and reorganization of securities companies, and the expansion of financing channels of
securities companies, positively support securities companies to use comprehensively the various feasible ways of market-ruled financing,
and effectively improve the capital flow status. We shall strengthen the construction of corporate governance and internal risk control
mechanism, strengthen supervision, push forward the resource integration of industries, and properly handle the reorganization or
dropout of securities companies that are of high risk, as well as encourage well-managed securities companies to expand and develop.
20.
We shall encourage innovation on securities transaction mechanisms and products, and launch an independent stock index with the post-reform
companies’ stocks as models, and do research to develop the index derivatives. We shall perfect the system of negotiation-based transfer
and bulk transactions, and introduce certificate of securities and other products in initial public offerings and refinancing, so
as to balance market supply and demand.
21.
We shall continue to perfect the tax policies for encouraging public investment. Corporate pension, more social securities funds and
more qualified institutional foreign investors shall be encouraged to invest in the stock market, and the control over the proportion
of stock investment of insurance companies and other large institutional investors shall be loosened. For the strategic investment
on listed companies by overseas investors after share-trading reform, the regulatory department and the competent commerce department
of the State Council shall do research to promulgate the relevant provisions together with other relevant departments.
22.
We shall positively promote the amendment of the Securities Law, Company Law, Criminal Law, and other laws. We shall do research and
draft out the Regulation on the Supervision over Securities Companies, Regulation on the Risk Disposal of Securities Companies, and
the Regulation on the Supervision of Listed Companies, and other administrative regulations. We shall adjust and improve the policies
and regulations not geared to the positive and steady pushing forward of the share-trading reform. We shall formulate and improve
the corresponding administrative measures in time aiming at the new situations and new issues that emerge after the reform. We shall
improve the means of supervision, improve law enforcement effect, expand the room for market development and innovation, so as to
create a sound legal environment for the reform and opening-up of the capital market and its steady development.
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