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China gives go-ahead to sale of state holdings
By Andrew Yeh in Beijing
Published: May 1 2005 20:49 | Last updated: May 1 2005 20:49
China has given the official go-ahead for the sale of the state's huge
holdings in quoted companies, which account for about two-thirds of the
equity in businesses with a stock market value of $400bn.
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The China Securities Regulatory Commission said in a statement posted on
its website that rules taking effect immediately would allow a small
number of companies to take part in a trial programme of state share
sales.
The long-awaited guidelines say that the regulator and two-thirds of
shareholders will have to approve sales of state shares, giving the
commission and existing shareholders a veto over disposals.
Buyers of state shares will not be able to sell their stake in the first
year, and after that will be restricted to sales of a maximum of 5 per
cent of a company's equity in each 12-month period.
The regulator did not specify which companies or sectors would be eligible
to participate in the trial programme, which is intended to allay fears of
the potential impact on share prices of a sudden disposal of state
holdings. It also made no reference to proposals reported in China's
state-owned media for a suspension of initial public offerings and other
share sales during the trial period.
The rules mark China's third effort to resolve the problem of state
shareholdings, which include stock held by the central and provincial
governments, cities and other state-owned companies.
Regulators experimented with ways of selling state shares in 1999 and
2001, but had to abandon the attempt, in part because of a sharp drop in
market values.
Analysts said the likely impact of the latest proposals would be difficult
to gauge until individual companies produced detailed proposals. However,
the announcement appeared to have been timed to minimise market
disruption. It was made at the start of a week-long national holiday when
markets will be closed.
The Shanghai and Shenzhen exchanges have performed poorly this year, with
the Shanghai Composite index down about 8 per cent and the Shenzhen market
10 per cent lower.
Analysts have been saying for years that China must sort out the overhang
of state shares if its markets are to recover - an important goal for
policymakers seeking to use the value of state holdings to underpin the
country's pensions system.
However, the government has been deeply divided on how to reform capital
markets.
Fraser Howie, a Hong Kong-based securities expert, said: "Everyone agrees
that something needs to be done." Mr Howie estimated that it could take
between five and 15 years for the state to divest a significant amount of
its shares.
In its statement, the regulatory commission admitted that it faced "major
obstacles" in the structural reform of capital markets. "The main issue is
minimising complica tions and uncertainty of the initial reform period,
and better protecting the stability of securities markets and the rights
of investors," the commission said.
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