Chinese investors brushed aside reports the government may be poised to revive its plan to sell the US$241 billion of shares it holds in publicly traded companies, citing a catch-22 that's caused two years of delays.
The conundrum: Every time the government announces plans to sell the shares, markets plunge, shearing value off the state- owned stakes and undermining investor confidence. The benchmark Shanghai A-share market fell 0.8 percent yesterday and 4 percent the past month.
"The issue of state-owned share sales isn't one that can be resolved so quickly and easily," said Chen Zhe, an analyst with Citic Securities.
"The government has been flip-flopping on this issue for the past two years. It's unlikely to be rash about resuming the sale because any attempt will cause the stock market to plunge," Chen said.
The Chinese government needs the money to pay for social welfare programs, after scrapping Maoist cradle-to-grave guarantees. The new welfare program's 199 billion yuan (US$24 billion) deficit the past three years may widen as about 200 million people retire in the next 30 years, according World Bank estimates.
China may be poised to announce next month that it's resuming share sales, the China Business newspaper reported, without citing the source of its information. The weekly is published by the Chinese Academy of Social Sciences.
The share-sale plan has been shelved for 21 of the 25 months since it was first announced in June 2001.
The biggest share sale under the plan, the 11.8 billion stake in China Petroleum & Chemical Corp, or Sinopec, Asia's largest refiner, occurred in August 2001. Two months later, after a 40 percent plunge in markets in four months, the government said it was suspending the share-sale program.
Talk the program might be resumed surfaced again early last year. In June last year, after the Shanghai A-share index tumbled 15 percent on the speculation, the government said it was scrapping the program. The index surged 19 percent in the next three weeks.
The China Business report yesterday said rules for resumption of the share sales have been drafted. About 30 percent of the state-owned shares will be sold at book value to investors who already own stocks, the report said, citing an unidentified official at the State-Owned Assets Supervision and Administration Commission.
That suggests the government is willing to sell part of its holdings at discount prices. In the case of Sinopec, the book value is 1.78 yuan per share, while yesterday's share price is 3.81 yuan.
A second 30 percent slice of government-held shares will be offered to the public-at-large at market prices, the paper said. Another 30 percent of the shares will be given to the nation's social security fund, and the government will retain the remaining 10 percent.
"Any attempt to unload state shares will cause volatility in the markets, so the government is likely to proceed with caution," said Ma Jun, who manages US$100 million at E Fund Management Co in Guangzhou. "The report is yet another rumor that surfaces time and again."