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Tue, Jun 28, 2005 - Page 12 News List

China says state-held shares to trade

CONTROL The chairman of China's stock market watchdog said yesterday that gradual reform on non-tradable shares will start soon, under strict supervision


China's stock market watchdog said yesterday it plans to gradually expand the sale of non-tradable state-held shares although the government will retain control of key enterprises.

"We will gradually carry out reform on non-tradable shares, following an approach of starting with pilot companies and then moving towards others," said Shang Fulin (尚福林), chairman of the China Securities Regulatory Commission (CSRC).

He told a briefing that the policy of the Chinese government is to eliminate the difference between tradable and non-tradable shares but not to "sell out all shares."

"Making all shares tradable doesn't mean selling out all shares," he told reporters.

Shang said the current system whereby companies have shares that can be traded normally and others owned by the state which cannot be traded distorts the market.

"The division ... is counterproductive to the formation of a reasonable price mechanism but also adversely affects market expectations. Holders of non-tradable shares care little about price fluctuations," he said.

The problem is a "stumbling block" to improving the capital-market infrastructure, he said.

Earlier yesterday, the China Securities Journal quoted Shang as saying that China would "carry out the state-share sale plan in all listed companies once conditions are ripe to clear substantial hurdles for developing China's stock market."

The reform is designed to deal with the overhang of the state's non-tradable shares, a problem which has dogged China's capital markets for years, but Shang gave no timetable for the plan.

Under the program, non-tradable shares would be listed and the state's massive holdings that account for around two-thirds of the stockmarket's current US$425 billion capitalization would be gradually reduced.

Forty-six companies have been selected so far by the government in a pilot program to reduce state holdings but the government has moved very cautiously so as to reassure investors spooked by the prospect that their holdings will be diluted by a flood of cheap stock.

The government has been trying to resolve the problem for years but each time it has announced specific plans to sell down the state-owned shares, the markets have dropped very sharply.

The latest attempt began in April, when the announcement pushed an already weak stockmarket to eight-year lows despite the overall view that the short-term pain would be worth it if the bourse was put on a sounder footing for the long-term.

The markets welcomed the news yesterday, with Shanghai A-shares up some 2.00 percent.

The China Securities Journal also said two panels have been set up to tighten regulations on listed companies and securities houses.

It said the authorities wanted to establish a comprehensive supervision system where related government departments can share information and crack down on embezzlement and the practice of providing illegal guarantees by listed companies.

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