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June 29, 2005

More Confusion for China Share Sell-off

We posited this question in a prior post: will the Chinese plan to sell non-tradable shares apply to all companies? Evidently not, according to Shang Fu-lin, the chairman of the CSRC. Although all listed non-tradable shares will be converted into tradable shares, not all listed companies will sell those shares. The state will hold on to much of its holdings.

Financial Times's Geoff Dyer posits that this announcement is related to the fact that "some investors [are] afraid of a glut of new shares coming on to the market." [Subscription page.]

Not really. There is more at work here.

From the website of the embassy of the People's Republic of China in the U.S.:

"After the non-tradable shares become tradable, whether they would come into circulation or not depends not only on the shareholders' strategic choice, but also on relevant restrictions, said Shang.

He clarified the restrictions as follows: firstly, it depends on the entire strategic layout of state-owned sectors. After the reform on non-tradable shares is completed, state-owned shares can be cashed in only upon the approval of the state-owned assets authorities.

Secondly, it depends on the intention of controlling shareholders. Even though there are no restrictions in the laws and policies, the controlling shareholders will hold a substantial amount of shares in the long run in order to control the company."

Well, that clears things up: the state will choose the companies to participate in the sale of converted shares. The state will continue to hold the Ace cards as investors plaintively ask for approval.

Am I hallucinating or doesn't this latest pronouncement tend to make less valuable the publicy-owned shares of those companies whose converted non-tradable shares won't be sold? The publicly-traded shares in those companies will remain burdened by a state ownership beholden to nary a market force. They will gather at the lower end of the market, weighing it down, while the companies whose shares are more or less freely tradable will better reflect their market values.

And then, there is the further complication of H shares. There has been a report in western media that H shares will be included in the reform, but it appears that this is, as yet, just talk:

尚福林說，A股和H股分屬大陸和香港兩個市場，分別適用兩種不同的市場規則。在股權分置改革的過程中，對含有H股的公司解決其A股的股權分置問題，在具體方案的設計上要充分考慮這一因素。在境內證券市場的發展過程當中，我們有很多規則的制定都是學習和借鑒了香港市場的做法，今後我們還會一如既往地加強與香港證券監管部門及證券交易機構的溝通和交流。

So, even as the state announces cheerfully that the problems in the stock market will be resolved within one to two years, it injects further distortion and confusion into the plan to sell off state shares.

Disciple: What is this thing that is like a share, but not a share?
Master: Ah, yes. Tell me, what is the sound of one investor's hand clapping?

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» Daily linklets 30th June from Simon World
Before we dive in, two things. Firstly I've added a section to the left sidebar with a link to the Daily Linklets category, so you can trawl your way back through past links. Secondly, last night the Sitemeter ticked over 300,000. Thank you. Last year ... [Read More]

Tracked on June 30, 2005 5:01 AM

» Daily linklets 30th June from Simon World
Before we dive in, two things. Firstly I've added a section to the left sidebar with a link to the Daily Linklets category, so you can trawl your way back through past links. Secondly, last night the Sitemeter ticked over 300,000. Thank you. Last year ... [Read More]

Tracked on June 30, 2005 5:17 AM

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