Invest-for-return is a fundamental market rule. However, many listed companies in China seem all too happy to take the investment but ignore the return and are content to play deaf and dumb when it comes to return dividends for investors.

Statistics show that the net profit for listed companies in 2010 was 1.68 trillion yuan ($264 billion), but the total cash dividends paid out amounted to only 498 billion yuan, less than 30 percent of the net profit.

In fact, more than 200 companies found that they did not give any dividends at all that year.

Yet the hunger of companies for financing is seemingly insatiable. They not only seek large sums of money from initial public offerings (IPOs), they also seek funds from investors through refinancing.

But the lack of return dividends means investors are unable to pursue long-term value investing and are forced instead to seek a return from stock price differences.

However, the healthy development of the domestic market hinges on investors obtaining reasonable returns from value investments.

So the new rule recently issued by the China Securities Regulatory Commission is a welcome move that will help promote long-term value investing and the stable development of the market.

The new rule requires listed companies to improve their returns to investors and to specify their rules of return. It also requires companies planning to list to clarify their dividend policies and dividend plans in their IPOs.

Investors will now be able to pay more attention to the investment value and long-term development of enterprises, rather than relying on speculative trading to make money.

For enterprises, the new rule will act as a kind of institutional constraint. Financing through the stock market will no longer be a low-cost option and they will have to fulfill their responsibilities and obligations to investors.

However, the higher price earning ratios and offering prices of shares issued means that the costs and rates of return are different for big and small shareholders, and there are concerns that most returns will be pocketed by the largest shareholders and small investors' profits will remain low.

Supporting institutional reforms are needed to lower the offering price of IPOs and new share issues and to end the dividends tax. These will strengthen the initiative of listed companies to share the dividends with small investors as well.

(China Daily 11/29/2011 page8)