SMPG D [2020] No.26

Attention: all District People’s Governments, and all Commissions, Offices and Bureaus (Administrations) of the Municipal People’s Government, and all relevant Units:

We hereby issue to you the Several Measures for Urging and Raising the Quality of Shanghai Listed Companies, and request you to implement them conscientiously.

Shanghai Municipal People’s Government

November 20, 2020

Several Measures for Urging and Raising the Quality of Shanghai

Listed Companies

Listed companies have been the cornerstone of the healthy and stable development of the capital market, and have been playing a significant role in promoting regional economic development.In order to thoroughly implement the decision-making arrangements of the CPC Central Committee and the State Council, further stimulate the vitality of the market itself, actively respond to such adverse effects as COVID-19 pneumonia epidemic, and urge Shanghai listed companies to resolutely take the road of high-quality development, the following measures have hereby been formulated.

I. Define the Overall Goal

Guided by Xi Jinping’s thought on the socialism with Chinese characteristics for a new era, we shall fully implement the spirit of the 19th National Congress of the Communist Party of China and the Second, Third, Fourth and Fifth Plenary Sessions of the 19th National Congress, practice the new development concept, deepen the structural reform of the financial supply side, and give full play to the joint efforts of all parties to make the governance and operation of this Municipality’s listed companies more regulated, the information disclosure more authentic and effective, the main business more prominent, the investor return mechanism continuously optimized, the prominent problems effectively solved,and the ability of sustainable development and overall quality significantly raised. The listed companies shall play a greater role in this Municipality’s building “five centers”, strengthening “four major functions”, implementing three new major tasks, and launching “four major brands”, and shall make greater contributions in this Municipality’s upgrading of industrial structure and high-quality economic and social development.

II. Raise the Governance Level of Listed Companies

1. Regulate the corporate governance and internal control. Strengthen the guidance on the code of conduct of the directors, supervisors and senior managers, controlling shareholders and actual controllers of the listed companies.Regularly publish the best practices and warning cases of the governance and internal control of this Municipality’s listed companies.Enhance the effectiveness of internal control, and explore and pilot the setting up of an organ to regulate the internal control in the listed company in accordance with the Articles of Association.Support investor protection agencies, strategic investors, institutional investors and small and medium investors to participate in the corporate governance.Standardize the performance of promises and related transactions of listed companies, and urge the solution of problems left over by history and competition in the same industry.Consolidate detailed guidelines relevant to the duty performance for the independent directors and establish a municipal talent pool of independent directors for this Municipality’s listed companies. Support listed companies to implement more flexible, standardized and effective equity incentives and employee stock ownership plans, and expand the pilot scope of employee stock ownership plans of State-owned listed companies.Scientifically define the rights and responsibilities of relevant parties in the governance of State-owned listed companies, perfect the governance mechanism of State-owned listed companies, and explore the incorporation of the corporate governance, internal control and information disclosure into the assessment indicators of State-owned assets.Encourage cash dividends, support and regulate the share repurchase of listed companies, and strengthen standardized management of treasury stocks.

2. Raise the quality of information disclosure. Listed companies and other information disclosure obligors shall,oriented to the needs of investors, fully disclose the information necessary for investors to make value judgments and investment decisions.The voluntary information disclosure must adhere to the principles of consistency and continuity, and must not conflict with the information disclosed according to law, and must not be selectively disclosed or mislead investors. Such information disclosure as business and technology, business operation and industry risks shall be prominent, concise and easy to understand, avoid the excessive use of a large number of professional terms or industry terms, and avoid vague, templated and redundant information.Optimize the information disclosure evaluation mechanism of listed companies and strengthen the application of evaluation results.Strengthen the management of accounting practitioners, perfect the follow-up education mechanism of certified public accountants and strengthen the fundamental construction of listed companies’ accounting.Strengthen the guidance on the common problems in the implementation of accounting standards by listed companies, strengthen the risk warning of accounting audit, and raise the quality of financial information. Severely crack down on telling lies and making false accounts, and prohibit the compilation of false financial accounting information.Strengthen the main-body responsibility of inside information management. Urge the listed companies to establish and perfect the information disclosure system regarding environment, society and corporate governance (ESG). Relevant industry authorities and institutions shall, according to the rules of the capital market, support, coordinate and urge listed companies to disclose relevant information in accordance with the law.

III. Support Listed Companies to Be Better and Stronger

3. Support the listing of high-quality enterprises.Relying on the “Light of Huang-Pu River” action, we shall increase the policy-support dynamic for science and technology innovation enterprises, continuously urge the construction of “Light of Huang-Pu River” science and technology innovation enterprise base, gather relevant public data to carry out enterprises’ business behavior analysis by means of full use of big data technology, continuously push the incubation and cultivation of science and technology innovation enterprises, and provide accurate services and counseling to raise the standardization level of the enterprises intending to be listed.We shall urge the enterprises in more key fields such as integrated circuits, artificial intelligence, biomedicine, electronic information, new energy vehicles, high-end equipment, advanced materials, and life and health, as well as the representative enterprises of new economy and the traditional enterprises undergoing digital transformation to be listed for further development.We shall support science and technology innovation enterprises in Lingang Special Area, Zhangjiang National Independent Innovation Demonstration Zone and other zones undertaking important strategic tasks of the State and this Municipality to list in the science and technology innovation board, and encourage the return of high-quality red-chip enterprises. We shall publish the “Zhangjiang Index”, which shall match the status of Shanghai’s international financial center and science and technology innovation center. We shall encourage and support the listing of pilot enterprises of mixed ownership reform, support the government guidance funds, venture capital funds, private equity investment funds, industrial investment funds and State-owned capital to invest in the layout of scientific and technological innovation industries, and expand the pilot scope of market-oriented operation of State-owned venture capital enterprises.We shall give play to the active role of Shanghai Equity Exchange in cultivating enterprises’ listing and financing.

4. Give play to the leading role of industry. Provide policy support such as factor allocation and fiscal taxation for listed companies, guide listed companies to bring along employment, production, ecological improvement and to perform social responsibilities, and urge them to form industrial clusters, and to play a greater role in the fields of perfecting the industrial chain and leading scientific and technological innovation.Study and perfect the policy support for listed companies to participate safely and reliably in financial derivative transactions like future deals, enrich risk management tools, and encourage listed companies to carry out risk management related to their main business.Give full play to the role of listed companies in the fields of promoting the coordinated development of Shanghai International Financial Center and Science and Technology Innovation Center, pushing forward the construction of Lingang Special Area of China (Shanghai) Pilot Free Trade Zone, and consolidating the regional integrated development strategy of the Yangtze River Delta.Support listed companies to vigorously develop their “time-honored brands”, and encourage relevant enterprises to optimize their ownership structure and to integrate assets by relying on the capital market, so as to play the role of vanguard in launching the “four major brands” in Shanghai.Perfect the protection of intellectual property rights, consolidate the punitive compensation system for infringement according to law, and optimize the sharing mechanism of scientific and technological achievements.Strengthen the vocational education and training system for high-end technical personnel, support listed companies to introduce domestic and foreign talents, and provide talent think tank guarantee for the development of listed companies.

5. Support market-oriented mergers and acquisitions (M&A) and structuring.Support listed companies to speed up the industrial upgrading and become better and stronger through asset restructuring, acquisition of domestic and overseas assets and domestic and overseas equity carve-outs.Allow more qualified foreign investors to make strategic investments in domestic listed companies.Provide personalized comprehensive services for high-quality enterprises in strategic new-emerging industries and scientific and technological innovation industries.Urge the reform of this Municipality’s State-owned assets and enterprises, give full play to the role of pricing, value appraisal and asset evaluation results of the stock market in the transaction pricing of State-owned assets, and carry out the reform of mixed ownership by relying on the capital market.Give play to the role of the municipal shareholding platform of State-owned assets, optimize the strategic layout of State-owned assets and enterprises, and raise the efficiency of State-owned capital management.Support M&A funds, private equity funds and bank M&A loans to participate in the mergers and acquisitions and restructuring of listed companies.

6. Broaden diversified financing channels.Support listed companies to carry out diversified bond and asset-backed securities financing, and encourage qualified enterprises to enrich financing means through innovative financing tools such as preferred stocks, perpetual bonds, convertible bonds and REITs. Encourage relevant companies in such innovation and entrepreneurship clusters as Lingang Special Area of China (Shanghai) Pilot Free Trade Zone, Zhangjiang National Independent Innovation Demonstration Zone, Hongqiao Central Business District, G60 Scientific Innovation Corridor, University Science and Technology Park and the Integration Demonstration Area in the Yangtze River Delta to issue such applicable financing tools as various new types of bonds in the securities market.Give full play to the institutional innovation advantages of Lingang Special Area of China (Shanghai) Pilot Free Trade Zone, and provide convenience for cross-border financing of listed companies.Encourage financial institutions to provide financing support in various ways for strategic new-emerging industries and high-tech listed companies.Support high-quality science and technology innovation enterprises to carry out financing such as intellectual property pledge loans, and explore innovative financial services such as R&D loans and investment and loan linkage.Study and establish a long-term assessment mechanism for institutional investors to attract more medium and long-term capital to enter the market.Concentrate on solving the problem of difficult and expensive financing for small and medium listed companies, increase the dynamic of credit supply and implement differentiated monetary and credit support policies. Broaden financing channels by giving full play to the role of non-bank financial institutions.

IV. Improve the Exit Mechanism of Listed Companies

7. Smooth exit channels. Support listed companies to exit and clear according to law,and thus to realize the survival of the fittest through multiple channels such as active delisting, enterprise merger, restructuring and listing, bankruptcy and reorganization. Form “Shanghai Experience” by setting up typical cases of market-oriented exit of this Municipality’s listed companies.Perfect the bankruptcy reorganization system of listed companies by simplifying the bankruptcy reorganization procedure and optimizing the process.

8. Do a good job in the delisting. Consolidate the provisions stipulated in the Securities Law of the People’s Republic of China, increase the supervision dynamic on the delisting, and strengthen the main-body responsibility of listed companies that meet the conditions of mandatory delisting, resolutely exercise the delisting of listed companies that seriously damage the market order and meet the mandatory delisting standards, and do a good job in the follow-up arrangements for mandatory delisting.Severely crack down on the acts of malicious evasion of delisting through financial fraud, profit transfer and market manipulation.Improve the mechanism of the monitoring on delisting risk, early warning and information sharing.Perfect the working mechanism of joint prevention and control of delisting risk, formulate the plan for handling delisting risks, and ensure the smooth delisting of listed companies.

V. Solve the Prominent Problems of Listed Companies

9. Mitigate the risk of stock pledge and bond default.Strengthen the risk prevention and control of stock pledge of listed companies, and consolidate the main-body responsibilities of the major shareholders and the actual controllers.Perfect the regional coordination mechanism of handling the stock pledge risk, give play to the role of the local coordination mechanism of the Office of Financial Stability Development Committee (Shanghai Municipality), establish a full-scale stock pledge database, regulate and perfect the behavior standards of financial institutions’ participating in the stock pledge and the supervision standards of the pledge inside and outside the market.Strictly control the pledge of restricted shares, and the major shareholders of listed companies shall strictly abide by relevant specifications and commitments when pledging restricted shares.Support various financial institutions to participate in the risk mitigation of stock pledge of listed companies in a market-oriented manner.Support various capital to participate in market-oriented debt-to-equity swaps according to law, strengthen the joint monitoring on all kinds of credit risk maturity and resale risks, and perfect the overall coordination mechanism of handling the default risk.

10. Seriously tackle the problems of capital occupation and illegal guarantee.Prevent the occupation of newly increased funds and strengthen the risk prevention and control of the confusion of related funds of listed companies.Intensify the effort to crack down on new-type capital occupation acts such as buying and selling business without commercial substance or bill exchange, outside investment and payment of project funds by using related parties.Focus on solving the existing occupation of capital by urging each company to pay off or resolve fund occupation within a time limit.Severely crack down on the acts of capital occupation and illegal guarantee that are not paid off or rectified within the time limit or newly occurred. Strengthen the administrative responsibilities by promptly transferring those responsible for suspected crimes to the public security and judicial organs, and pursuing the criminal responsibilities as promptly and strictly as possible according to law.When a listed company implements bankruptcy reorganization, it is necessary for it to put forward a practical and feasible solution to solve the problems of capital occupation and illegal guarantee, so as to effectively protect the legitimate rights and interests of the listed companies and the small and medium shareholders.

11. Strengthen the policy support for the response to major emergencies.In the event of major emergencies in terms of natural disasters and public health, which have a serious impact on the normal production and operation of listed companies, the relevant departments shall,based on such coordination mechanism as the macro-policy and financial stability of the Central People’s Government, strengthen the coordination and joint action, and consolidate this Municipality’s policies on the industry, finance, and fiscal taxation;and take timely measures to maintain labor employment, production materials, public utility supply and logistic transportation channels, and support listed companies to resume normal production and operation as soon as possible.

VI. Intensify the Punishment for Violations of Laws and Rules

12.Intensify the investigation and punishment of violations of laws and rules.Severely crack down on such illegal acts as financial fraud, embezzlement of funds of listed companies, illegal guarantee,insider trading, and market manipulation, make good and full use of various self-discipline and administrative disciplinary measures such as self-discipline supervision, administrative fines and market ban, and further increase the efforts on clue discovery and criminal transfer, so that any case that meets the criminal prosecution standards can be transferred as soon as possible.Implement the differential handling of responsibilities among listed companies, controlling shareholders and actual controllers, and highlight the accountability of the“key minority”such as the decision-making and main responsible persons of the illegal acts. Such intermediaries as securities companies and securities service institutions and their employees involved in the case shall be investigated and dealt with together.Strengthen the cross-border law enforcement cooperation by actively and steadily handling all kinds of illegal cases in the process of the interconnection between Shanghai stock market and overseas markets.

13.Perfect the joint punishment mechanism. Promote the sharing of supervision information, and strengthen the closed-loop working mechanism of joint punishment. Relevant untrustworthy subjects who are responsible for the illegal acts of listed companies shall be restricted in terms of industry access, financial services, going abroad and travel according to law, so as to create a market environment of “Praising the Integrity and Punishing the Dishonesty”.Continuously deepen the linkage and joint action between administrative law enforcement and criminal justice,optimize the work flow, shorten the case-handling cycle, and quickly crack down on illegal acts by means of joint case handling, professional support, case consultation and complementary investigation methods, and respond to the market concern in time.

VII. Create a Sound Market Ecology

14. Optimize the doing business environment. Give full play to the role of Shanghai public data and the Integrated Online Platform so as to promote the comprehensive application of public data in the Municipality. Strengthen the information sharing among all districts and all relevant departments so as to optimize the administrative work flow. Raise the efficiency of supervision and law enforcement by urging the construction of big data platform of supervision over listed companies and optimizing the information inquiry and sharing mechanisms involving listed companies’ finance, taxation, customs, banking, market supervision, industry supervision and judicial organs. Strictly consolidate the relevant provisions on guaranteeing the payment of small and medium-sized enterprises, and intensify the effort to solve the problem of default of accounts receivable of listed small and medium-sized enterprises. Practically push the reforms to “streamline administration and delegate power, improve regulation, and upgrade services” and foster a market environment of fair competition.

15. Play the role of intermediary institutions. Strengthen the supervision over the practice quality of such intermediaries as sponsor institutions, accounting firms, law firms, asset appraisal agencies and credit rating agencies in related businesses of listed companies, consolidate the responsibilities of the intermediaries, and give full play to the role of intermediaries as “gatekeepers”.Relevant departments and institutions shall actively cooperate with securities service institutions to carry out businesses such as letter certification and investigation with due diligence.

16. Improve the investor protection mechanism.Strengthen the main-body responsibility of listed companies, and urge listed companies and related parties to treat all shareholders fairly.Strengthen investor protection education and encourage investors to actively exercise shareholders’ rights.Incorporate investor education into the national education system, advocate the concepts of rational investment, value investment and long-term investment, and strengthen the awareness of investment risk prevention.Give full play to the exemplary and guiding role of investor protection agencies in exercising and safeguarding the rights of investors, and support them to collect voting rights.Give play to the professional advantages of Shanghai financial trial, support and consolidate the representative litigation system of civil compensation litigation of securities, and urge the securities class action system with Chinese characteristics to carry out the beneficial practice in this Municipality.Encourage and advocate the controlling shareholders and actual controllers of listed companies and related securities companies to bear the liability of compensation in advance for investors according to the Securities Law of the People’s Republic of China, so as to raise the compensation efficiency. Support investor protection agencies to file shareholder subrogation lawsuits against the related acts by the related subjects in listed companies, which infringe on the legitimate rights and interests of the company and cause losses to the company.Study and explore the establishment of the risk reserve system for listed companies in violation of laws or rules in this Municipality. Give play to the role of such professional mediation organizations of securities and futures as the Joint People’s Mediation Committee for the disputes of securities, funds and futures. Study and explore diversified dispute resolution mechanisms, such as securities civil litigation of public interest initiated by procuratorial organs, and arbitration award system for civil disputes applied by investors against the misrepresentation made by listed companies.

17. Create a sound public opinion ecology.Further improve the cooperation mechanism between the regulatory authorities and the major news media in this Municipality in terms of public opinion monitoring and media notification of listed companies, support all kinds of media to strengthen policy interpretation and publicity, give play to the role of public opinion supervision, and create a sound public opinion environment for the capital market.Regulate the reports and comments of various subjects on the interest-related listed companies, prevent conflicts of interests, increase the crackdown on fabricating and disseminating false information or misleading information, and standardize the order of information dissemination.Strengthen the social responsibility awareness of listed companies, directors, supervisors, senior managers and actual controllers, encourage entrepreneurship, resolutely guard against the moral hazard, and publicize the concept of honest management.

These Measures shall be effective as of December 1, 2020.