Chinese firms quickly increase dividends and repurchase shares in a reform reminiscent of Japan’s approach

Chinese listed companies are making significant moves to buy back shares and increase dividends in response to regulatory calls for reform, reminiscent of efforts in Japan and South Korea. This trend has sparked a rally in the market, with record cash dividends totaling 2.2 trillion yuan ($300 billion) announced for 2023, despite a decrease in overall profits.

Over 100 listed companies have returned money to investors for the first time, while others are implementing share buyback schemes to avoid potential delisting or penalties under stricter regulations. These measures, introduced in March to enhance investor returns, have led to a solid rebound in stocks, with the CSI300 index rising nearly 17% from its five-year lows in February.

While some have drawn parallels to Japan’s capital efficiency drive that boosted the Nikkei to record highs, fund managers remain skeptical about the true intentions behind China’s reforms. Many believe the focus is more on market rescue than genuine corporate governance improvement.

Government-controlled companies, which make up about 30% of the market capitalization in China and Hong Kong, are closely monitored by the ruling Chinese Communist Party, raising concerns about potential conflicts of interest with non-state shareholders.

Despite these reservations, investors have responded positively to the increased dividends and buybacks, signaling a desire for more shareholder-friendly practices. However, experts caution that Chinese companies still have a long way to go in terms of corporate governance.

As China continues to push for reforms in line with Japan and South Korea, global fund managers remain cautious due to geopolitical uncertainties and the prioritization of state interests over shareholder concerns. Nonetheless, the market has seen gains as investors anticipate further progress in governance improvements.