Supplementary Rules for Listing Suspension and Termination

By Mao Baigen & Roland Sun, Pu Dong Law Office, Shanghai

At the end of 2001, the China Securities Regulatory Commission (CSRC) issued rules that outlined the suspension from trading and de-listing of loss-making companies trading on the Shanghai or Shenzhen stock exchanges in a bid to protect investors. Further to the Suspending and Terminating the Listings of Loss-making Listed Companies Implementing Procedures (Revised) that were issued on November 30 2001, the CSRC recently issued Supplementary Provisions for this legislation. The Supplementary Provisions cover several issues that were not addressed in the Revised Implementing Procedures, and they came into force on March 18 2003.

The first issue addressed in the Supplementary Provisions concerns accounting mistakes or false records in a listed company's financial statement. Accounting irregularities are not covered in the Revised Implementing Procedures, but today their existence is frequently discussed in media coverage of China's stock markets. The Supplementary Provisions state that if a listed company voluntarily makes or is ordered to make a correction and thereby retroactively adjusts past financial statements, which results in losses shown for the last two years, the stock exchange shall make the decision to suspend its listing within 10 working days as of the publication of its annual report of the current year so long as the loss-making continues in the current year.