Time to Go: New CSRC De-listing Regulations

The introduction of a law that purports to suspend or terminate listed companies that incur losses over a given period of time reflects the growing development of China's securities markets. While such a provision already exists in the PRC Company Law, this new regulation may help to further improve the management and corporate governance of listed companies. 
 
Mandatory de-listing of problematic companies is not a new concept in the legal regime in China. Article 158 of the PRC Company Law (中华人民共和国公司法)provides, among other things, that if a listed company that has had losses for three consecutive years cannot make a profit within a specified period of time and fails to meet the listing requirements, the securities regulatory authorities under the State Council may terminate the listing of such company's stock on the stock exchange.

However, it is not uncommon in China to find that published laws are not fully implemented until implementation regulations have been devised by the government authority that is primarily responsible for the enforcement of such laws. That may explain why a company listed on the Shanghai Stock Exchange has not been ordered to de-list although it has suffered losses for more than five years. Therefore, the market recognized the promulgation by the China Securities Regulatory Commission (CSRC) of the Suspending and Terminating the Listings of Loss-making Listed Companies Implementing Procedures (CSRC Procedures) on February 22 2001 as a milestone in the development of China's securities markets.

The CSRC Procedures set out the rules and procedures in connection with the suspension and termination of listed companies that incur losses over a substantial period of time. Concurrently with the promulgation of the CSRC Procedures, the CSRC also issued a notice (CSRC Notice) that applies to companies that were suspended from listing before the promulgation of the CSRC Procedures. The release of the CSRC Procedures and CSRC Notice signals that the Chinese government has decided that it is time to begin enforcing the de-listing rules. The clock for loss-making companies to exit the market has just started ticking.

SCOPE OF APPLICATION

The CSRC Procedures apply to loss making listed companies in both the A share market and B share market in China. Article 2 of the CSRC Procedures provides that the CSRC Procedures apply to the suspension, resumption and termination of stock listing by loss-making companies. Under the PRC Company Law (中华人民共和国公司法), a listed company may be subject to de-listing for reasons other than incurring continuous losses, such as serious violation of law, but such other reasons are not addressed by the CSRC Procedures.