The Shougang Co., Ltd., one of China's biggest iron and steel producers, has recently raised 1.8 billion yuan from the stock market through the issue of 350 million shares to domestic investors.

Company officials said the issue will reduce its debt-to-assets ratio and expand its profit base significantly.

Statistics show that more than 900 Chinese enterprises, most of which are state-owned enterprises (SOEs), have been listed on domestic and overseas stock markets since the early 1990s when China opened its own stock exchanges.

These enterprises have raised more than 400 billion yuan from stock exchanges, which has helped them improve their financial condition, accelerate their technical development, and expand their profit base.

Economic analysts say the stock market can play an even larger role in raising funds for China's SOEs. Listed companies now account for less than 10 percent of all businesses in China, compared to 50 percent in developed countries.

They also note that the capitalization of the Chinese stock market is only 30 percent of the nation's gross domestic product ( GDP), compared to 40 percent for developing countries as a whole, and 70 percent for developed countries.

The continued expansion of the Chinese stock market is feasible in terms of capital supply, they believe.

The savings deposits of Chinese citizens now stand at six trillion yuan and the figure is increasing by 800 billion yuan a year.

The Chinese government has recently issued a series of new policies to further increase capital supply, including allowing SOEs and listed companies to buy stocks, allowing insurance firms to invest in securities investment funds, and encouraging securities brokers to expand their capital base.

Government interference and the absence of a visible owner have been major causes for low efficiency in the SOEs. Analysts say an ideal option is to restructure the SOEs into stock companies and allow them to be listed on stock exchanges, so that visible shareholders will replace the invisible state as their owners.

As listed firms, the SOEs would have to subject its operations to the scrutiny of shareholders, the regulations of the stock exchanges, securities regulatory bodies, law firms and accounting firms.

The lack of an effective stimulus mechanism is also an old problem for China's SOEs. The contract system experiment in the past has often led to only short-term adjustments on the part of the managers.

More recently, Chinese experts have recommended a managers' stock option system, which is widely used in well-known companies in developed countries. A number of Chinese firms have already taken this recommendation.

The stock market's other major function is to optimize the allocation of resources through market forces, a process that has been demonstrated in the economic development of today's China.

In the past few years, Chinese consumer electronics producers such as Changhong, Haier and Konka have increased their production and market shares by purchasing a number of smaller companies, and have gained market shares previously held by foreign producers.

The adjustment of the state sector of the economy is a major strategy of the Chinese government. Its implementation has begun with the experiment of decreasing the amount of state-owned shares in chosen SOEs.

Experts here say the government's experimental program is a feasible and cheap way for the state sector to withdraw from competitive sectors of the economy, while the huge funds raised in the process can be used for the social security system and sectors where the state-owned economy should play a bigger role.

Some experts predict that in this way the ownership of China's SOEs soon would be diversified, and a mutual holding relationship would appear among China's SOEs and between SOEs and private businesses.

By that time, the state sector of the economy would be much more competitive versus the private sector than it is now, according to these experts. (Xinhua)