Revision of the Corporation Law to make it easier for listed firms to buy back stocks

China is likely to revise laws to make it easier for listed companies to buy back shares, another policy measure to shore up market confidence after stocks declined more than 20 percent so far this year.

The revision is mainly to article 142 of China's Corporation Law, which regulates share repurchases.

The National People's Congress Standing Committee, China's top legislative body, will conduct deliberation on a number of laws including the revision draft during a five-day session, which started on Monday.

In the latest version, "to avoid significant damage to the company and to safeguard company value and shareholders' equity" and "to convert stocks into convertible bonds" have been added to the scenarios allowed for the repurchase of shares.

The revision will streamline the process for obtaining approval for buybacks, according to a draft version of the Corporation Law submitted for deliberation and issued on Monday.

The draft also includes terms refining details regarding the repurchase of shares, according to the revision.

"The revision regarding regulations on share repurchase has become quite essential, as it is expected to provide strong legal support for the establishment of a long-term incentive mechanism and the improvement of the quality of listed companies," Liu Shiyu, chairman of the China Securities Regulatory Commission, said on Monday.

"Such efforts are essential under the current situation, and will be helpful to stabilize market expectations."

The latest revision to the law, which follows a number of coordinated moves by the nation's top financial regulators, is another step expected to boost the stock market amid concerns over pledged-share risks, which may likely to lead further declines.

Buying back stocks, which reduces the number of shares outstanding, is expected to improve the earnings per share ratio, because the company's annual earnings are then divided by a lower number of outstanding shares.

The revision comes at a critical moment, as the repurchase of shares plays an important role in improving the quality of listed companies and the revision is expected to further protect the legitimate rights and interests of listed companies and investors, according to Li Daxiao, chief economist at Yingda Securities.

In the meantime, the government will use multiple tools to provide more policy support to promote the healthy development of the financial market, Liu said at China's Fund Industry 20th Anniversary Forum held by Asset Management Association on Monday.

For instance, the government will further encourage private equity and venture capital funds to participate in corporate mergers and acquisitions, debt-to-equity swap programs and equity financing. The government will improve the financing facilities of listed companies, improve their governance structure and effectively prevent pledged-share risks, said Liu.