For the background to this post, click here.
The China Securities Regulatory Commission (CSRC) 中国证券监督管理委员会 announced an extension of its plan to sell the non-tradeable state shares of 42 listed companies. This Bloomberg article lists the companies involved.
FT also reported on the announcement, noting briefly that
"The State-owned Assets Supervision and Administration Commission (SASAC) 国务院国有资产监督管理委员会, which controls the state's equity holdings, said at the weekend it would engage in the shareholder reform plan, but added that the state would maintain controlling positions in many state-owned enterprises."
Hmm... That's a frighteningly contradictory assertion.
The finance magazine Caijing deals with this idea in greater depth:
"...in spite of...optimistic pronouncements the plan still faces major obstacles. Most notably, it must overcome the “lack of policy harmony” among its proponents on key issues. Since the plan’s announcement, some shareholders have attempted to claim compensation from the reforms, pointing to the losses they suffered during the 15-year development of China’s stock market. Until now, the State-owned Assets Supervision and Administration Commission (SASAC), which manages all state-owned property, has made no formal declaration regarding whether and how to compensate these shareholders.
The conduct of the SASAC has left some analysts pessimistic about whether the CSRC’s plan will ultimately survive: “the SASAC has made many statements supporting [the floating of untradeable state shares], but with no concrete action. The CSRC, on the other hand, could resort to one desperate last measure, slamming more restrictions on the future fundraising efforts of those companies who haven’t solved their untradeable shares problem,” said one analyst from Boshi Fund Management. 'The CSRC appears to be pushing aggressively, but it is doubtful whether a unilateral action would succeed.'”
[ABI editor's ellipsis. NB: I have been unable to locate original Chinese version of this article on the Caijing site, and have put in a query for the link with the editors.]
Is it possible that some firms will divest their non-tradeable state shares and others will not?
That aside, the market -- at least the Chinese financial media -- appears to understand that an intractable inter-agency dispute at the highest levels may ultimately affect the execution of CSRC's share sale plan.
Why a continuing dispute over an issue of major proportions? The issue is this: who, if anyone, will compensate investors when share lots of gargantuan proportions come on the market? Perhaps no one can offer anything near a satisfactory answer. It is a hot potato question that everyone fears and few career bureaucrats would dare to touch. No wonder the inter-agency dispute.
Despite this, it appears that the CSRC has thrown down the gauntlet, having decided -- forgive my mixed metaphors -- to blaze a trail. It could be that the CSRC, having failed to come to terms with SASAC, has simply opted for the capitalistic notion that the market must take the pain now for future benefit. It is a decision based either on careful planning and analysis, complemented by a dose of courage and the support of some on the State Council -- or sheer foolhardy cheek.
Given the extraordinarily intelligent and well-trained Chinese peppering the ranks of the bureaucracy, I would tend towards the former. But knowing that the ranks can be otherwise salted, the latter remains a distinct possibility.
