China Introduces New Regulations to Facilitate Employee Share Purchase Plans

The China Securities Regulatory Commission (CSRC) issued new regulations on June 20 to allow employees to buy shares in listed companies out of their compensation. The shares must be held for 36 months. Total employee shareholdings cannot exceed 10% of the company, and no one individual can own more than 1%. Companies must comply with information disclosure and insider trading rules and other securities regulations. There are no special tax incentives for employees and no requirement for shares to be offered at a discount.

Quoted in BNA, Richard Gu, a senior consultant with Linklaters, noted that although the new regulations do not cover cross-border share plans, non-Chinese companies that invest in companies traded on a Chinese exchange may benefit because "instead of using international shares, they can actually use the shares listed in China."

Chinese workers save much more of their income than workers in other countries, and the CSRC reported that 74% of listed companies had some stock owned by employees. The new rules seem unlikely to spur a great deal of interest, given that people can buy shares on the market at the same price without the holding rules. The regulatory agency, however, said it will next consider tax and other incentives for the plans.