China Securities Regulatory Commission, Opinions on Improving the Quality of Listed Companies

Issued: October 19 2005

Main contents: The Opinions put forward 26 points to improve the quality of listed companies. Article 6 suggests listed companies to reinforce the incentives and constraints on senior management personnel by exploring stock option incentive (Article 6). Listed companies are also advised to attach high importance to shareholders' cash dividends (Article 7). The controlling shareholder or the de facto controller shall not embezzle funds of the listed company by such means as borrowing money from the listed company, or having the listed company provide security, repay loans or provide advances for him or her. For funds embezzled, controlling shareholders, especially those that are state-owned, and de facto controllers shall, depending on various circumstances, adopt such methods as cash settlement or setting off debt with bonuses, shares or assets so as to accelerate the pace of repayment and be sure to complete repayment before the end of 2006 (Article 10). Local people's governments at all levels shall establish a sound risk contingency mechanism for listed companies, and when necessary, organize commissioned management over listed companies that are caught in crisis and may cause serious impact on social stability (Article 25).
Related legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p.21 and Several Opinions on Promoting the Reform, Opening up and Stable Development of the Capital Markets, Jan 31 2004, CLP 2004 No.7 p.75