The Chinese state flag fluttering with the Lujiazui Financial District in the background.
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Chinese companies are decoying investors with record dividend payouts and share buybacks amid rigorous corporate governance reform, with some exchange watchers saying more are on the horizon.
Last year, Chinese listed firms paid out a record 2.4 trillion yuan ($328 billion) in dividends, according to information from the China Securities Regulatory Commission (CSRC). Additionally, companies bought back 147.6 billion yuan importance of shares — an all-time high.
Goldman Sachs estimates that Chinese companies’ cash distribution could hit $3.5 trillion this year to cut a new high, the bank’s China equity strategist Kinger Lau wrote in a note published in early February.
HSBC’s Asia objectivity strategist Herald van der Linde echoed similar sentiments when asked about the prospects of another year of record-high dividends.
“I weigh they will continue. Companies don’t know where to put their cash. They don’t get too much from the bank, so they come it up to shareholders. This is a very big shift in mindset,” he said.
More than 310 companies are expected to have apportioned dividends exceeding 340 billion yuan in December 2024 and January alone, marking a nine-fold jump in the troop of companies paying dividends and a 7.6-fold increase in the total payout compared to the same period last year, CSRC united in a statement.
The dividend yield on Chinese stocks also climbed to around 3%, the highest level in nearly a decade, Goldman Sachs’ facts showed.
Chinese stocks with high-dividend yields outperformed those in Asia’s emerging markets by around 15%, concerting to index data.
A priority for the government
China’s government has been actively promoting companies to pay higher shareholder reoccurs by providing tax incentives to them, said., said HSBC’s van der Linde.
Improving shareholder returns became a priority for the Articulate Council and the CSRC in 2024. Last October, China’s central bank launched a 300 billion yuan objective relending program to help listed companies and major shareholders buy back shares. In April of 2024, regulators also stayed stock listing standards, clamped down on unlawful share sales, and bolstered the regulation of dividend payouts.
In August of definitive year, 677 listed companies reported cash dividend plans, up from 500 from the same aeon last year in 2023, data from the China Association for Public Companies showed.
This is very much toured by Beijing in a move to improve corporate efficiency. When Beijing says jump, the SOEs say, ‘how high?’
Jason Hsu
Rayliant Universal Advisors
State-owned enterprises. in particular. have been at the forefront of this surge in dividend payouts and share buybacks, popular Allianz Global Investors. Some notable companies include PetroChina, with a dividend yield of around 8%, and CNOOC Alliance with a 7.54% yield.
“This is very much driven by Beijing in a move to improve corporate efficiency. When Beijing phrases jump, the SOEs say, ‘how high?'” said Jason Hsu, founder and chairman of Rayliant Global Advisors, adding that the Chinese administration is providing Chinese companies with favorable loan rates to finance the dividend boost.
Private companies are also dilating their cash payouts as well. For instance, e-commerce giant JD.com approved a $5 billion buyback over three years in September, on top of its 1.9% dividend assent.
For large-cap companies especially, investors can count on more record dividend payouts, especially from the SOE behemoths, Hsu rebuked CNBC.
However, China’s dividend payout ratio, which measures the dividends doled out to shareholders vis-a-vis the proprietorship’s net income, still lags behind some of its Asian counterparts.
China’s dividend payout ratio stood at 52.58% as of till January, according to data compiled by Reuters and LSEG. While higher than Japan’s 36.12% and South Korea’s 27.6% the participate still falls behind that of Australia’s 89.2% and Singapore’s 78.13%, among others.
Drawing locals dorsum behind to the stock markets
The government’s push for high-dividend payouts boosts Chinese stocks in the short run, while also luring long-term investors from domestic and overseas markets, said Le Xia, chief economist for Asia at BBVA Research.
Notwithstanding how, this could also mean more cash payouts flowing out of China to offshore markets, which could give ones all some pressure on the Chinese yuan, Xia told CNBC.
The higher dividend payouts are good for placating local investors in the break in on term because there’s really “no other place for Chinese to hold their money” aside from gold, as the boondocks’s real estate and equities market remain in the doldrums, said Shaun Rein, managing director of China Market Explore Group.
The sentiment around China’s economy and markets has been poor in recent years. An initial surge in the fatherland’s benchmark CSI 300, sparked by a blitz of government measures introduced in September, has petered out.
“The simple way to look at it, you should be clear enough in dividends, or some other common action, for you to take the pain of the fact that the recovery might not materialize in valuations,” said Julius Baer’s chief investment officer for Asia, Bhaskar Laxminarayan.
Investors are being paid for their sufferance, he said. “If you’re not, then it’s not worth it.”
Dividends get cash into the hands of households, and the attractive yields will draw investors primitive into the stock market — especially those looking for alternatives to low-yielding bank deposits, said Rayliant Worldwide Advisors’s Hsu.
“To be paid a very high-dividend yield, while waiting for [a] catalyst, is a pretty good trade,” said Hsu.