Well-functioning mechanism critical to efficient resource allocation in capital markets, analysts say

Unprofitable public companies should strictly follow delisting regulations and halt trading in their shares on the nation's exchanges, according to China Securities Regulatory Commission Chairman Xiao Gang.

"The delisting system is one of the most important and fundamental regulations in China's capital market," said Xiao.

He called for policy changes that would make it easier for shares delisted from mainstream exchanges to trade in the over-the-counter market. Xiao added that such shares could regain their exchange listings when they meet the standards.

Xiao made his comments at the 2013 annual meeting of the China Association for Public Companies over the weekend. The meeting focused on corporate governance and enterprise transformation during the nation's economic restructuring.

A well-functioning delisting system is critical to the effective allocation of resources in the capital market, analysts said.

A spokesman for the CSRC said last Friday that the agency will continue to improve the delisting system based on market principles and closer supervision.

According to the stock exchanges in Shanghai and Shenzhen, since the delisting policy was introduced in 2001, fewer than 80 companies have left the public stock transaction boards. Of those, only 49 companies were delisted because of their financial performance, accounting for less than 2 percent of the total A-share issuers.

Meanwhile, new listings have boomed. As of the end of 2012, there were 2,492 enterprises trading in Shanghai and Shenzhen, compared with 1,223 at the end of 2002.

"It is unhealthy for the stock market to only take new listings without letting others go," said Cao Fengqi, director of the Finance and Securities Research Center at Peking University. He suggested that the improvement of the delisting system should take place in conjunction with the ongoing reforms covering initial public offerings.

The securities regulators have suspended IPOs since October 2012. New rules for initial share sales are still under study, with the goals of curbing misconduct and boosting investor protection.

According to the CSRC, 268 companies had withdrawn IPO applications as of Oct 11, leaving 354 companies still on the list.

Cheng Boming, president of Citic Securities Inc, said on Monday that IPOs may resume by year-end, after top party officials release a reform blueprint. The Third Plenum of the Communist Party of China's 18th Central Committee will run from Nov 9 to 12.

In his comments over the weekend, the CSRC chairman also stressed the need to promote acquisitions and reorganizations involving public enterprises and encourage the development of specific funds for mergers and acquisitions.

Xiao also stressed the need to curb insider trading and protect the interests of smaller investors.