The Shanghai Stock Exchange will issue a new index on the first trading day of 2005 to track the 50 companies with the highest dividend payments, the exchange announced Tuesday.

The index takes 50 Shanghai-listed companies with stable dividend payments and solid liquidity as its constituents. The companies include large caps such as Sinopec, Baosteel and Shanghai Automotive, as well as medium-sized companies such as Laigang Corp and Xiamen Construction & Development.

The 50 companies altogether contributed more than half of the dividends paid by all companies listed in Shanghai this year, with an averaged cash dividend of 2.31 percent.

The index will offer investors a new investment tool and a benchmark to trace market trends, said Hu Ruyin, director of the research center of the exchange. "We were designing the index from a new angle," he told China Daily in a telephone interview yesterday. "We are putting more emphasis on investors' returns."

A number of listed companies in China do not pay dividends regularly to shareholders even if they reported profits, and sometimes the corporate profits were misused by controllers of the firms as transparency was insufficient, experts said.

But regular dividend payments are linked with the actual performance and quality of the listed firms, so the new index may offer investors, especially those seeking long-term investments, a criteria for investments, said Hu.

The new index will come into operation on January 4, when the bourses resume trade after the New Year's holiday.

Hu said that the Shanghai Stock Exchange has also been studying other new index products, including a unified index that reflects the movement of stocks both in Shanghai and Shenzhen.

The development of the unified index has been going on for years and the index is ready to be launched once the authorities give approval, said Hu.

The Shanghai exchange is also preparing for index futures, which will offer Chinese investors a new risk hedging tool.

The new products will enrich the diversification of stock indices in China, said Luo Lin, head of the index development team of CITIC Securities, which has developed a series of securities indices, including some jointly developed with Standard & Poor's.

But it is rare for overseas stock markets to use such a "dividend" index, he said.

Dividend payments are important. And they arouse public concern in China because of problems in corporate governance and information disclosure, he said.

But they are not absolute criteria to judge the quality of a listed firm, Luo said. Some companies, especially those in a fast expansion period, may need to put the profits into reinvestment and expansion.

The basic solution to the ailments in China's stock market is to let minority investors have more say in the decision-making of listed firms, said Luo.

(China Daily December 29, 2004)