The government Sunday announced that it was giving up on its plan
to sell off massive State holdings in listed companies through the
domestic stock market, removing the barrier that has been hindering
a market turnaround for the past year.
The State Council, China's cabinet, formally cancelled a
provisional regulation requiring listed companies to sell part of
their State holdings through domestic initial public offerings
(IPOs) and additional share offers, Xinhua reported Sunday,
confirming a market rumour that drove share prices up on
Friday.
The requirement still applies for Chinese firms to be listed
overseas.
"The sale of State-held shares is an important reform move that is
moving in the right direction," Xinhua quoted a joint spokesperson
for both the Ministry of Finance and the market watchdog China
Securities Regulatory Commission (CSRC) as saying.
But "it is hard to formulate an appropriate plan that is systematic
and widely accepted by the market in a short time," the
spokesperson said.
The authorities launched the controversial reform in June last year
to raise funds for an underfunded social security fund, by ordering
listed firms to sell State shares equivalent to 10 percent of
proceeds from IPOs and new share offerings at market prices.
The move largely backfired, triggering months of market stagnation,
drawing sharp investor criticism on overpricing and forcing the
authorities to suspend it four months later for
reconsiderations.
Worries over a new version of the scheme continued to overshadow
China's stock markets, which lost some 30 percent of total market
capitalization in the past year. And investors generally remained
wary in building positions despite government moves in recent
months aimed at boosting confidence.
But the time for a major uptrend has come, analysts said, cheering
at what they see as the government finally correcting its own
mistakes.
"The market has bottomed out and should be able to start a
turnaround on the news," said Zhou Ling, a manager at Haitong
Securities.
Zhou said the authorities had been preparing the market over the
past week for the move, citing remarks by CSRC Chairman Zhou
Xiaochuan that stressed China's 11-year-old stock markets were
still in an error-prone elementary phase.
Market rumours about the move, probably started by insiders, had
already helped stock indices stage a robust rally by Friday's
close, Zhou said.
"The news will substantially boost investor confidence, especially
institutional investors,'' said Wang Yuanhong, a senior analyst
with the State Information Centre. The government took a string of
steps to boost market this year, including a cut in interest rates,
reducing brokerage commissions charged to investors, a
market-stabilizing reform in new share offer policies, as well as
supportive remarks by senior officials, but the market continued to
head down as investors were dogged by fears of a revised State
share sale programme.
"Now they know that the sword hanging over their heads has been
removed," Wang said.
Xinhua said the Ministry of Finance, instead, would inject part of
State share holdings in listed companies into the social security
fund, which will gain the cash it needs through dividends or
selling the shares to strategic investors rather than in the
domestic stock market.
This should give the State share sale programme a push in the
direction by reducing State dominance in listed companies as well
as in the entire economy, a goal many economists see as the true
significance of the reform.
"They've made a step in the right direction," Wang said.
(China
Daily June 24, 2002)