By Samuel Shen and Summer Zhen
SHANGHAI/HONG KONG- Chinese listed companies are rushing to buy back shares and lift dividends as they respond to regulators’ calls that echo reform efforts in Japan and South Korea, driving a welcome rally even if investors doubt that broader governance changes are afoot.
China-listed firms announced record cash dividends totaling 2.2 trillion yuan ($300 billion) for 2023 despite a fall in combined profit, official data shows. Over 100 listed companies returned money to investors for the first time.
Meanwhile, a growing number of firms are unveiling share buyback schemes to avoid being delisted or sanctioned with other penalties under tougher rules.
China’s measures, designed to improve investor returns and announced in March, have triggered a solid rebound in stocks – the benchmark CSI300 index is up almost 17 percent from February’s five-year lows.
They have also drawn comparisons with the Tokyo Stock Exchange’s push for capital efficiency that drove the Nikkei to record highs.
But a Japan-style rally is unlikely as China’s reforms have met with skepticism from fund managers who say it’s more about rescuing the market than improving corporate governance.
Government-controlled companies, which account for roughly 30 percent of market capitalization in China and Hong Kong, are under the tight grip of the ruling Chinese Communist Party, which could raise conflict of interest issues with non-state shareholders.
In Japan, firms have begun to unwind strategic shareholdings as part of ongoing reforms to be more market-oriented.
Returning money has struck a chord with investors who “have been calling for bumper dividends and more buybacks,” said Yang Tingwu, fund manager at Tongheng Investment.
However, “Chinese companies have a long way to go in terms of corporate governance,” he added. Under China’s top securities regulator Wu Qing, listed companies are pressured to engage more with investors and improve returns.
This mimics Japan’s corporate reform and South Korea’s “Value Up” program, said John Pinkel, partner of New-York-based hedge fund Indus Capital, which recently added China exposure.
“The common denominator of these positions: they all have large cash positions, are buying back shares or increasing dividends, and we like their business models.”
The China campaign has seen many firms arm-twisted to pay dividends. – Reuters
