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Financial Times (London, England)

August 25, 2005 Thursday
London Edition 2

SECTION: THE AMERICAS & ASIA-PACIFIC; Pg. 8

LENGTH: 510 words

HEADLINE: China to free up trade in companies as it attempts to revive exchanges

BYLINE: By GEOFF DYER and FRANCESCO GUERRERA

DATELINE: SHANGHAI and HONG KONG

BODY:


China is to free up trading in all listed companies on mainland stock exchanges as part of a drive to revive the country's under-performing stock markets.

The government said yesterday that all 1,400 listed companies on mainland stock exchanges would be encouraged to change the status of their large holdings of non-tradeable shares so that they can be bought and sold, in a move intended to open the way to flotations and secondary share offerings.

In recent years China's stock market has slumped and it has played only a minor role in helping companies raise new capital.

In a joint announcement yesterday by five government departments, including the China Securities Regulatory Commission, the market regulator, the government said companies that had completed the reform of their shareholder structure would be given priority in raising new funds.

The initiative is designed to unwind the large number of shares of listed Chinese companies that cannot be traded on the exchanges - a principal cause, the regulator believes, of poor corporate governance and the drop in share prices in recent years.

The reform gives the government scope to reduce its stakes in many of the companies it controls and could facilitate future privatisations.

Officials also say the mainland stock markets will become much healthier because initial public offerings will no longer include non-tradeable shares.

However, the statement established no timetable for completing the reform.

Furthermore, it left open the question of whether holders of H-shares - Chinese companies with a listing in Hong Kong as well as the mainland - would receive compensation as part of the overhaul of share structures. Instead, individual companies are left to make their own decisions.

Although shareholders in the government's pilot programme were given some form of compensation for the increase in the number of listed shares, most observers said they did not expect holders of H-shares - in companies such as Tsingtao Brewery, China Eastern Airlines and Yanzhou Coal - to receive anything.

Nor will H-shareholders vote on the plans.

Analysts said the measures would help to clear the uncertainty that has dogged the country's equity markets for the past few years.

"This is exactly what the authorities need to do," said Frank Gong, head of China research at JPMorgan, the investment bank.

"We expect most of the companies to resolve the issue of non-tradeable shares by the end of this year."

Although many details are still unclear, getting this far is an achievement for Shang Fulin, head of the CSRC. His tenure had been criticised for inaction until earlier this year. "The plan is a pragmatic response to certain interests in the market that would otherwise not have been willing to support the scheme," says Stephen Green, economist at Standard Chartered in Shanghai.

The Shanghai composite index rose 1.5 per cent to 1,167 points on the news, although it is still 8 per cent down this year. Some investors believe that, with the reform plan in place, the market has turned a corner. Lex, Back Page

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