A New Era of Capitalism Emerges in China’s Stock Market
As China’s stock market struggles to regain momentum, a significant cultural shift is underway. Companies, at the behest of Beijing, are buying back their shares and paying record dividends to investors, marking a turning point in the market’s focus on shareholder returns.
Shareholder Returns Take Center Stage
The dividend yield on Chinese stocks has surged to around 3%, the highest since 2016, rewarding investors who have patiently waited for a rebound. This shift in focus is attributed to China’s regulators and policymakers, who are engineering a culture of shareholder return. According to Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas, “If that can be successfully engineered, it will change the makeup of the capital market.”
Record Dividend Payouts and Share Buybacks
Chinese firms distributed a record 2.4 trillion yuan ($329.7 billion) in dividends in 2024, while share buybacks rose to a record high 147.6 billion yuan last year. Wu Qing, head of the China Securities Regulatory Commission, expects over 310 companies to pay out dividends totaling more than 340 billion yuan in December and January, a 9-fold increase from the same period last year.
Investors Flock to Dividend-Themed ETFs
In a sign of the market’s maturation, investors have poured nearly $8 billion into dividend-themed exchange-traded funds (ETFs) since 2020, compared to just $273 million in the previous five years. The CSI Dividend Index, comprising traditional energy, financial, and material companies that yield high dividends, has outperformed the blue-chip CSI300 index, rising 20% in the past five years.
A Shift in Mindset
Policy measures, including a 300 billion yuan share buyback financing program and guidelines requiring mainland companies to improve shareholder returns and valuations, have contributed to the focus on higher-yielding firms. Nicholas Chui, China portfolio manager at Franklin Templeton, notes that “China was never a dividend-yielding asset class as a whole, because it was always seen as a growth-oriented play. But now I think we’re in a nice sweet spot where you have both growth and yield.”
Rising Dividends Prevent Bond Rush
The dividend yield is now well above the 1.7% offered by 10-year government bonds, preventing income-seeking mainland investors from rushing into bonds. Shares of companies like Contemporary Amperex Technology and Tencent have risen after announcing buybacks or dividend payouts.
A Big Shift in Mindset
Goldman Sachs estimates that Chinese companies listed at home and abroad could return a total 3.5 trillion yuan to shareholders in 2025, a jump of over 17%. Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC, notes that “Companies don’t know where to put their cash, so they return it now to shareholders. This is a very big shift in mindset.”
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