Downturn in China's Stock Market Affects Employees
Executive Director
One effect of the dramatic decline in the stock of China's publicly traded companies has been to cause substantial losses for employees who participated in stock purchase programs. In June 2014, the China Securities Regulatory Commission released guidelines for employee stock ownership plans (ESOPs); public companies then began creating such plans, with 101 plans in place as of September 8 this year. Note that although Chinese plans have the same name and acronym as US ESOPs, they are very different. They require an employee contribution and usually are for a targeted set of employees.
The Shanghai stock market index is down 42% since June, and two-thirds of China's companies with ESOPs have seen their stock value decline. At some companies, employees borrowed money to purchase more shares through the plans, magnifiying their losses. Xiangxue Pharmaceutical employees, for example, borrowed two yuan for every yuan of their own money they invested, only to see the stock lose 58% of its value.