Securities regulators announced on Tuesday afternoon that they would soon publish detailed delisting regulations for firms that have reported three years of net losses.

According to a circular released along with the announcement by the China Securities Regulatory Commission (CRSC), if firms fail to crawl back into the black within a required period of time, they will be expelled from the market.

"It means that domestic enterprises can no longer rest under the protective umbrella of the country, which ensures a life-time stay in the bourses," observed economist Dong Furen.

Dong claims that he and other experts have for years been calling for a smooth delisting mechanism to build up healthy market order.

"It is a twist of value and waste of resources if poor-performing companies are allowed to stay on the market permanently," said Han Zhiguo, director of the Banghe Wealth Institute.

Beginning in 1999, China developed a classification system which described firms that had three consecutive years of losses as PT (particular treatment) in mid-1999. Those with two straight years of losses are labeled ST (special treatment).

As a kind of warning to struggling firms, the CRSC has temporarily suspended trading in PT stocks, but no deadline has been set for delisting.

"The market can't wait forever for the loss-making firms to turn out profit," said Zhou Dao, an analyst with Southwest Securities.

"The government has to face the problem and come up with a clear solution."

CSRC has, in fact, been working on development of a delisting channel for some time, but regulators are afraid that delisting may damage the interest of stock holders and lead to instability of the market.

Prices of ST and PT stocks fell sharply Wednesday after the CSRC announcement.

According to Dong, regulators need to come up with relevant measures that offer an appropriate solution for investors in a delisted firm.

"It is also a good lesson that stock investing should be based on rational analysis and the fundamentals of listed firms," he said.

Speculation and hopes of restructuring have occasionally driven some PT and ST stock prices sky-high.

Most of the struggling companies are facing intense pressure to bow out of the market, but a number of PT company officials have expressed plans to maintain their footing as long as possible while they try all possible measures, including pacing up asset restructuring, to get out of the swamp.

Presently, there are eight PT companies listed on China's stock market. The number may further increase this year, as analysts are predicting losses in year 2000 reports from a couple of ST firms.

(China Daily 02/22/2001)