China has unveiled rules to help troubled securities firms pay back debt owed to retail investors, as Beijing tries to cushion the impact from its efforts to clean up the loss-making brokerage sector. The rules, issued by the Ministry of Finance, the central bank and the China Securities and Regulatory Commission (CSRC) late on July 26, cover the hand-out of low-interest loans and the purchase by local authorities of the bad debt.
State media reported earlier in July that the central bank had set aside 10 billion yuan ($1.23 billion) as it prepared to dish out those loans to securities firms as part of an overall restructuring.
"The move aims to further the work to clear personal debts in brokerages," the three powerful bodies said in a statement published on the CSRC's Web site (www.csrc.gov.cn).
The rules follow steps taken in late 2004 when Beijing, fearful of social instability, began to take stakes in brokers that had racked up trading losses and were unable to cover their obligations to investors.
Part of that burden will now be shifted to local authorities, who have been ordered - for the first time - to help buy brokers' debts, the rules said.
China will effectively offer retail investors a basic form of deposit insurance by agreeing to buy all debts worth less than 100,000 yuan entrusted to brokerages, although Beijing will only assume 90 percent of debts above that amount.
The rules come as China restructures its struggling brokerage sector, a loss-making sector crowded with about 130 players whose ill fortunes have shaken the confidence of the country's more than 70 million investors.
In the past two years, Beijing has taken over or shut down around 20 troubled brokerages on the verge of bankruptcy, some of which have been hit by a slumping stock market that was Asia's worst performing in 2004.