Although he has been investing in the stock market for around four years, Zhang Ye only "attended" his first shareholders' annual general meeting (AGM) in December last year.

As a stockholder in China Minsheng Banking Corporation Ltd, this 24-year-old Shanghainese stock trader cast voted online during the bank's AGM in Beijing on December 24.

And no matter how small his shareholding, Zhang always makes a point of exercising his right to vote, having done so online at four meetings already.

Zhang is a direct beneficiary of a regulation issued at the end of last year by the China Securities Regulatory Commission to protect the rights and interests of negotiable shares investors.

China's stock market has two types of shares: negotiable and non-negotiable. The former belong to institutional investors and retail investors. The latter are mainly held by State-owned enterprises and cannot be traded on the market.

But the owners of non-negotiable shares often hold an overwhelming majority of stocks, and therefore have control of the company's board.

Balancing the interests

The regulation is aimed at balancing the interests of the two parties, by ruling that all the listed firms' decisions having an impact on the interests of its negotiable shareholders should be passed by a certain number of negotiable shareholders taking part in the AGM, and representing at least half of the company's negotiable stocks.

These decisions include the issuing of additional stocks or convertible bonds, the allocation of shares, listed firms' asset reorganization, and overseas listing.

Listed companies are also obliged to provide online voting facilities for their shareholders if they are unable to attend the AGM.

"Online voting provides shareholders, especially retail investors, with a convenient and cheap way to have their say in the policy-making process of listed companies," said Yao Denian, a senior researcher in finance law at the Chinese Academy of Social Sciences.

Yao pointed out that shareholders can be found in almost every part of the country, and for a small investor in a remote region, it is nigh on impossible for them to afford to travel to the shareholders' meeting.

"They were effectively silenced before the introduction of online voting," added Yao.

Beijinger Zhang Yunyan also took advantage of the new rights when she voted online on March 25 during the AGM of Anhui Tongdu Copper Stock Corporation Ltd, held in Tongling, in East China's Anhui Province.

"I am glad that small investors' right to vote is now protected," she said.

However, not all small investors share this sense of enthusiasm.

Most small investors are hampered due to their lack of confidence or ability to surf the Internet.

Statistics from the China Securities Depositary & Clearing Corporation Limited (SD&C), the first company in China to provide online voting to shareholders, show that by March 8 this year, only a mere 1,161 negotiable share investors had taken part in online voting through its website.

The Securities Times newspaper published a survey earlier this month which showed that more than half of small investors are unwilling to exercise their right to vote at company AGMs as they do not believe that it will make any difference to the final result.

"What point is there for me to vote? With only a few thousand shares, my voice will be silenced by the big institutional investors," said Beijing-based investor Pei Wenjiang.

Experts say it is understandable that the market is in the doldrums, given the attitude of smaller investors, but they should have more awareness of how to protect their own rights. Small investors can actually tilt the result towards them by taking the side of the institutional investor that shares their point of view. On the other hand, small investors can combine to form a stronger group.

The survey also shows that about 30 percent of investors did not vote because they did not consider the electoral process to be user friendly.

"When I went to the securities company to confirm my voting ID, the clerk looked at me in amazement and told me that I was the first person to do this," Zhang Ye said in Shanghai.

Before casting their votes, investors have to go to the securities firms where they opened their trading accounts to confirm the voting ID they registered on the Internet. Many investors complain this process is complicated and wastes time, but experts say it is necessary in order to combat fraud.

"So far, only one client has came here to get ID confirmation," said Xu Kaiqing, who is in charge of online voting at Guosen Securities' Sanlihe trading outlet in Beijing.

Listed companies can actually choose from one of four electronic channels for the investors to cast their votes - the online voting systems provided by SD&C and the Shenzhen Securities Information Co Ltd, or the online trading systems of the Shanghai and Shenzhen stock exchanges, on which voting is just like stock trading.

Investors, especially older clients, prefer the trading system because it is easier to follow, Xu said.

But among the over 20 listed firms that had held online voting by March 8 this year, 15 chose SD&C because the online voting system has more advantages than the trading system.

"I hope there will be a more convenient platform and the older investors can get some training from the listed firms or securities companies," said Sun Shuzhen, a 71-year-old investor in Beijing, who got her ID confirmation with the help of a clerk, but still failed to cast her vote due to other operating problems.

Institutional investors benefit most

As a major group of negotiable shareholders, institutional investors will benefit more from the regulation.

The number of institutional investors is far smaller compared to private investors but they always hold most of the negotiable shares and are more resourceful. Their votes will decide the results most of the time.

Since the introduction of the voting rule last December, Hua An Fund Management Co Ltd in Shanghai had attended eight shareholders' conferences either on the spot or by online voting.

"We now have bigger say in the listed firms' policy-making and we do not miss any shareholders meetings," said Lin Hongjun, a department manager at the company.

(China Daily March 28, 2005)