Walter Hutchens’ Blog

The full text of the new PRC investor protection regulation that I wrote about yesterday is now available in Chinese here.

Dow Jones’ story about it is here.

The PRC’s English-language China Daily reports on the new rules here.

As I wrote earlier when the draft was first offered for public comment, I think this is a meaningful change in PRC securities regulation. The consequences of listing in China will now be much greater. Instead of just enjoying a capital windfall, managers and dominant shareholders (who don’t usually hold listed shares) must now obtain approval from holders of listed shares–generally a minority of shareholders–before taking many fundamental corporate actions. Public shareholders have been enfranchised. This is a big deal. It is potentially the single most important regulatory change made since China began its stock markets.

The rule requires that 50% of the listed shares at a meeting approve certain fundamental transactions. There is a catch-all that requires shareholder approval when an action can have a material affect on the interests of holders of listed shares.

What types of matters will have a “material affect” and should therefore be approved by public shareholders is not defined. It will be interesting to see whether or not the PRC court system or some other body can provide meaning to this provision and if they do so in a way that bolsters investor control over listed firms. When a group of shareholders become unhappy about a corporate action that has not been submitted to public shareholders for approval, can they sue to invalidate the action?