Circular of the State Council on Approving and Forwarding the Opinions of the China Securities Regulatory Commission on Improving the Quality of Listed Companies

Circular of the State Council on Approving and Forwarding the Opinions of the China Securities Regulatory Commission on Improving the Quality of Listed Companies

Guo Fa [2005] No.34

October 19, 2005

The People's governments of all provinces, autonomous regions and municipalities directly under the Central Government, all ministries and commissions under and all institutions directly under the State Council:

The State Council has approved the Opinions on Improving the Quality of Listed Companies, which are hereby forwarded to you. Please implement them earnestly.

Listed companies are the corner stone of the development of capital market. And improving the quality of listed companies is the key to raise the value of the capital market investment, which is also of important significance in strengthening the attraction and vitality of capital market, exerting fully the optimized resource allocation function of capital market, protecting the legal rights and interests of investors, particularly the medium and small investors, and promoting the healthy and steady development of the capital market of our country. For over a decade, listed companies of our country have kept developing and grown stronger increasingly, and have become the core force in pushing enterprise reform and industrial development. However, under the influence of factors such as the system, mechanism and environment, etc., there are quite a few listed companies that do not have well corporate governance structure, their operation does not accord with rules and their quality is not high, which have seriously effected the confidence of investors, and restricted the healthy and steady development of the capital market. Therefore, it is an important and urgent task for us to implement earnestly the Several Opinions of the State Council on Promoting the Reform, Opening Up and Steady Development of the Capital Market (Guo Fa [2004] No.3), and to raise the quality of listed companies.

Local people's governments at all levels shall assume the responsibility of dealing with the risks of listed companies within your own jurisdictions, prevent and dissolve effectively the risks of listed companies, and may keep in custody, when necessary, the listed companies that are in crises and might cause great impact on social stability. The securities regulatory departments shall strengthen the supervision over listed companies, investigate and punish timely behaviors that are in violation of laws and regulations, with regard to persons who are held liable for such behaviors, in light of the degree of seriousness, order listed companies to replace them or prohibit them from accessing the market, or transfer them to the public security or judicial organs, if any crime is involved. All departments concerned shall unify your thought, raise your awareness, cooperate with each other closely, establish a highly efficient and flexible coordinating and information sharing mechanism, make more effort, use comprehensively economic and legal means and necessary administrative means to create a favorable environment for the listed companies to develop in accordance with the rules, and support and urge listed companies to raise their quality in an overall manner to lay a good foundation for the healthy and stable development of the capital market.

Appendix: Opinions on Improving the Quality of Listed Companies (China Securities Regulatory Commission)

In order to implement the Several Opinions of the State Council on Promoting the Reform, Opening Up and Steady Development of the Capital Market (Guo Fa [2004] No.3) in depth and effectively, protect vigorously the legitimate rights and interests of investors and promote the consistent healthy development of the capital market, we hereby provide the following opinions on relevant issues concerning improving the quality of listed companies:

Article 1 To raise the awareness of, and value highly the work of improving the quality of listed companies
1. It is necessary to fully recognize the important significance of improving the quality of listed companies. Listed companies are a group that have the most advantageous potential of development in the economic operation of our country, and are the source of investment value in capital market. To raise the quality of listed companies is an internal requirement for fortifying the competitive edge of listed companies and realizing their sustainable development, the foundation for cementing the basis of the capital market and improving the healthy and stable development of the capital market, and the key to making the capital market more attractive and energetic and exerting fully the optimized resource allocation function of capital market. To raise the quality of listed companies is to, on the basis of maximizing the interests of all shareholders, raise constantly the level of corporate governance and operation management, the level of good faith and transparency, and capacity of making profits and sustainable development of the companies.
2. It is an important task to improve the quality of listed companies for pushing the reform and development of the capital market. For over a decade, listed companies have kept developing and grown stronger increasingly, their operation become regulated day by day, their quality raised gradually, and they have become the core force in pushing enterprise reform and industrial development. However, under the influence of factors such as the system, mechanism and environment, etc., there are quite a few listed companies that still have problems in corporate governance structure and regulated operation, and their profitability is not strong, and the return acquired by the investors is not high, which have seriously effected the confidence of investors, and restricted the healthy and steady development of the capital market.
　　......