In a policy trial balloon, China will release untraded stock in four state-controlled companies to the market, hoping to gauge the impact before freeing a much greater amount of state-owned holdings over time.
The announcement on Monday by the Securities Regulatory Commission followed another one quietly made last week. In that statement, the government said it would aim eventually to place all its nontradable holdings -- about US$300 billion at current prices -- on the market. Such a move would, in effect, privatize all of China's listed companies.
On Monday, however, the regulators started with only a small parcel of stock on an experimental basis.
The four companies in question -- the Shanghai Zi Jiang Enterprise Group (上海紫江企業), a packaging maker; Sany Heavy Industry (三一重工), which makes machinery; Tsinghua Tongfang (清華同方), a computer company; and the Hebei Jinniu Energy Resources Co (河北金牛能源), a coal company -- have a combined market capitalization of about US$2.4 billion, or about 1 percent of China's total.
Some Chinese investors criticized the plan as the latest of a string of official missteps that have hobbled China's stock markets as the country's economy has soared.
Others, however, guardedly welcomed the move as a painful but necessary step in addressing factors that have sent Chinese share prices to historic lows.
Investors have cited widespread corruption, managerial incompetence and the cooling effects of government control of the state-owned companies that crowd the country's stock exchanges as reasons for the slump.
Most of the 1,000 or so companies listed in China are state-owned. Typically, these companies sell a minority stake to the public, leaving most of the equity, and effective control, in government hands. About two-thirds of listed Chinese companies' value is locked up as nontradable state-held equity, analysts estimate.
"China's domestic stock markets aren't at all pure markets," said Ai Qunce, chief executive of International Credit, a Chinese investment company. "The government has used them to park many badly performing state-owned companies, and so there's always been a fundamental distortion between China's economic performance and the performance of the stock market."
Analysts said China faced a difficult situation: On the one hand, it needs to sell its holdings to raise cash for its social welfare and pension programs; on the other, the government fears inundating the country's stock markets with huge amounts of equity at a time the exchanges are already struggling. A previous effort to unload state holdings in 2001 was abandoned after stock prices fell by a third.
But the transfer of state assets to openly traded markets will ultimately discourage the pillaging of state-owned companies and the manipulating of stock prices, said Ivan Chung, managing director of Xinhua Finance, a rating company that monitors listed companies.
"It's a step forward for privatization and will inject more transparency," he said. "Shareholders will be able to have more confidence in management."
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