Huayi Electric will be delisted from the Shanghai Stock Exchange on Jan. 16, becoming the first company to be booted off a mainland bourse this year for flouting bourse rules, the Chinese electric equipment maker said yesterday,

Companies whose share price remains below CNY1 (USD0.14) for 20 straight trading days are removed from trading. Huayi’s shares dropped below CNY1 on Nov. 28 last year and has stayed below this figure ever since. The Wenzhou-based firm closed at CNY0.37 (USD0.05) on Dec. 26, market capitalization of CNY281 million (USD39.4 million), after which it suspended trading.

This makes Huayi the 28th firm to be kicked off an exchange for violating the CNY1 rule since the regulation was introduced in 2021. Twenty companies broke this rule and were delisted last year, accounting for more than half of the 43 firms kicked out over the period. In 2022 there was only one company that failed to trade above CNY1 and six in 2021.

A low stock price is a true reflection of a firm’s fundamentals, an industry insider told Yicai. The 20 firms booted out last year either had poor business or they had major shareholders illegally making use of the companies’ capital or they were unlawfully using the firms’ assets as collateral or they were insolvent.

By kicking out these companies, it can make room in the capital market for firms with sound business and so the quality of listed companies will rise, the person said.

There are three firms in the countdown for being delisted for trading below CNY1, two of which have already received warnings from the stock exchange. Another two companies closed below CNY1 yesterday, and three are very close to the line though still above it.