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Measure adopted to cool stock market

www.chinanews.cn 2007-03-21 09:44:49

(Source: chinadaily)

Mar.21 – Regulators, worried about by China’s red-hot stock market fever,
are taking a new measure to cool it by banning listed firms, flush with
new share sale proceeds, from investing it in securities.
The listed companies are also banned from buying derivatives and
convertible bonds with the proceeds, the China Securities Regulatory
Commission, China’s stock market watchdog, said in a statement seen on
its website on Tuesday.
The regulator said it will monitor companies more closely. Prime Minister
Wen Jiabao said at a press conference in Beijing on Friday that his
administration wants to see to a healthy stock market in China. He
promised closer look into companies’ books.
“Companies should not directly or indirectly use newly acquired funds to
buy stocks or derivatives or convertible company bonds,” the regulator
said in a statement. Firms must use the proceeds from share sales for the
intended purposes, it said.
If the enterprises intend to spend more than 10 percent of the raised
capital on items that the share sale was not originally aimed at funding,
they must get board approval and arrange an online shareholder vote, it
said.
“Regulators are concerned that proceeds are fueling the stock market
frenzy,” said a securities fund manager in Shanghai.
Beijing wants to curb speculation in the real estate and stock markets to
break boom-bust cycles fueled by 33.5 trillion yuan (US$4.3 trillion) of
household and corporate deposits. The speculative activity has driven
equity prices up by around 150 percent in the last 15 months.
China’s central bank, the People’s Bank of China, announced over the
weekend that it was raising interest rates by 27 basic points, but it has
failed to damp the feverish stock market, which rose both Monday and
Tuesday.
The frenzy has prompted officials to repeatedly warn that a major bubble
had formed and that investors, especially inexperienced retail punters,
stood to lose everything if the markets crashed.
On February 27, investors got a strong taste of the kind of volatility
that worries regulators when China’s key Shanghai index slumped nearly
nine percent in its steepest one-day fall in 10 years. Prices have since
recovered and surged to new record highs.
In another step aimed at dampening the frenzy, banking regulators have
moved to investigate a sudden spike in consumer loans believed to be
fuelling the market speculation.
The China Banking Regulatory Commission ordered in January that
commercial banks recall property loans suspected of being used instead to
speculate in the nation’s red-hot stock markets.

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