China’s ambitious campaign to revive its flagging stock market has made the yuan an unintended casualty, with record dividend payouts leading to outflows.
Interim dividends paid by Hong Kong-listed Chinese firms are set to reach US$12.9 billion between January and March, a record level for the first quarter, according to Bloomberg-compiled data. That comes as fourth quarter levels have already topped US$16.2 billion, the most ever for the period and up 47 per cent compared with a year ago.
The dividend bonanza is adding pressure on the Chinese yuan already weighed by a resurgent US dollar and the prospect of growing US-China tensions. The firms mostly pay dividends in Hong Kong dollars but earn the majority of their revenues in the yuan, which requires conversion.
The looming outflows will test Beijing’s ability to achieve short-term market stability without compromising longer term goals in the world’s No 2 economy. That’s especially important as policymakers also ramp up efforts to defend the currency currently hovering near one-year lows.
The higher client demand for foreign currency can mostly be pinned on dividend flows as many Hong Kong-listed firms introduce interim dividends, said Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group. “The increase in both the frequency and the net amount of dividends will continue to weigh as firms convert to other currencies for payment.”
Chinese firms have been boosting cash payouts to investors since authorities unveiled a once-in-a-decade capital-market reform plan in April. That included encouraging dividend distribution, better quality listings and corporate governance improvements. The blueprint triggered a rally in state-owned enterprises (SOE), many of which have a dual listing in Hong Kong and are among the most responsive to Beijing’s call to enhance shareholder returns.
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On the back of an unprecedented US$118 billion of dividends paid in 2024, interim payouts from the Hang Seng China Central SOEs Index’s member firms are expected to reach a record total of US$9.7 billion in the first quarter as well. Among them, China Construction Bank is poised to hand out US$6.5 billion – its first interim payment since 2008 – in late January.
China Mobile’s chunky interim distribution of US$6.9 billion in September marked a 7 per cent increase from the same period last year. CNOOC, also an investor darling for its hefty payouts, doled out nearly 26 per cent more on year in interim dividends in 2024, according to data compiled by Bloomberg.
Buying SOE shares had been one of the year’s hottest stock trades until late September, when a central bank-led stimulus blitz inspired a broader rally that has since lost steam. The Hang Seng SOE gauge is up 23 per cent this year, outpacing the 16 per cent gain in the broader onshore CSI 300 benchmark.
Despite the large payment sum in the fourth quarter, the US dollar amount is small compared to the third quarter, when full-year dividend distributions are typically disbursed. This year, the amount during the three months through September totalled US$74 billion.
Regulators have since stressed the importance of firms boosting their cash distributions, with more frequency and visibility as a key part of boosting shareholder returns. Those encouragements could turn into opportunity for those expecting further gains for the stock market, even if it is turning into a double-edged sword for the yuan.
“Depreciation pressure on the yuan towards the end of each year is unlikely to change the trend of increasing payouts at SOEs,” said Le Xia, chief Asia economist at BBVA. “Steps such as guiding dollar inflows may be used to support the currency in the face of such a squeeze.” BLOOMBERG
