(Yicai Global) June 2 -- More companies are getting delisted from the two bourses of China's mainland as the effect of new exit rules, updated in 2020, is starting to show.

Seven enterprises have already been forced to delist this year and at least 36 others are on their way out too, Yicai Global learned from data provider Wind Information and announcements issued by listed companies. In 2022, the number was 42 and in 2021, 17 firms left the Shanghai or Shenzhen bourses.

Moreover, over 40 listed companies have received delisting warnings so far this year, resulting in efforts to stay compliant with the listing rules. For example, amino plastics producer Rongtai Industry is trying hard to sell land and assets to obtain funds to repay its debts.

In late May, Amethystum Storage Technology, an optical storage device manufacturer, and Essence Information Technology, a drug traceability platform developer, were asked to stop trading on the Star Market in Shanghai on June 30 to become the first batch of delistings on the almost four-year-old market due to financial fraud and information disclosure violations. In comparison, only 64 companies were made to exit stock markets over the two decades that ended in 2019. 

In general, the reasons behind the mandatory moves can be trading-related such as low prices, turnover, market value, or few shareholders but they can also be about compliance or companies' financial health.

Almost half of the 43 companies that are expected to delist this year can point the finger at their stock prices that have remained below face value for a long time, Yicai Global noticed. In comparison, only one out of the 42 firms that were forced to stop trading last year had similar problems as most of those exits were about poor financial indicators such as a negative balance of net assets.

The rise in the share of stocks subject to face-value delistings indicates that the market mechanism of separating superior performers from inferior ones is starting to work after the new system was implemented, Hu Yu, chief economist of Xinding Fund Management, told Yicai Global. "Market-based metabolism is accelerating, which is conducive to the long-term healthy development of the capital market," Hu added.

Editors: Tang Shihua, Emmi Laine