State Share Sell-off to Fund Social Security

China is preparing to liquidate State shares in some State assets to fund its social security system.

Analysts predict the sell-off will have multiple effects on the financial market.

Finance Minister Xiang Huaicheng on Tuesday said China would liquidate some State assets in the capital market to help fund its social security programme.

A schedule and specific method are being designed to guide this sale of State shares to public investors via the stock market, he said.

The State currently holds about a 70 per cent share of Chinese shareholding companies.

A Homeway analyst said the State share sale may spark a sell-off on the stock market because of investor concerns that a wave of cheap flotations could drive down overall market prices.

But she also pointed out that the present bullish performance of the stock market has paved the way for market expansion and will help cushion part of the selling sentiment.

There are numerous possible ways to dispose of State shares, such as public bidding and placing the shares with existing shareholders, but transparency in the sales process is considered an important issue.

Authorities have yet to announce how and how much of the State shares will be disposed, but there are those who have advised the State to let the market set the share prices of the stakes to be liquidated. This would provide transparency and efficiency and maximize State earnings from share sales.

Analysts said China could set up a nationwide public bidding committee to select the best offers for the stakes on sale, with thresholds set for buyer's qualifications.

But bidding prices set via the use of initial public offerings, wherein the market decides the prices, seems to be more acceptable to investors. It would also ensure more transparency during the bidding process.

The wide involvement of public investors would better trail market sentiment for the share prices, the Homeway analyst said.

However, to prevent devaluation of the State shares and fraud, a base price should be set on the shares prior to the bidding, she said.

A suggestion has been made that professional investment banks be allowed to consult on sale strategies to upgrade the qualify of the share disposal.

The role of the stock markets' regulators has also been the object of discussion.

Reform in the stock market requires a readjustment of the role of the regulators from mere administrators, observers said.

Regulators should be more attentive to the truthfulness and fairness of the market practices and let the open market decide share prices.

The lack of market lever to set prices has played a role in the unsatisfactory prior sales of State shares in two listed companies.

Last December, the China Securities Regulatory Commission announced plans to cut the State stakes in more than 900 Chinese listed firms from 62 per cent of total share capital to 51 per cent and began offloading the shares.

It picked two listed companies to try out the sale by placing State shares with existing public shareholders, but sales were largely flat because the shares were overpriced.





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