Analysis: State Share Reduced, Soft Landing Made?

There were already out "Provisional Rules" for a reduction of state shares by the State Council. Despite relevant departments' comforting words Shanghai and Shenzhen stock exchanges in China still experienced a chilly day. On June 14 Shanghai composite index dropped 40.03 points to close at 2202.4 points, 1.78 percent down. Shenzhen composite index dropped 57.87 points to close at 4735.33 points, 1.21 percent down.

The State Council's "Provisional Rules" on state share reduction for raising social insurance funds, released on June 13, was blamed for the stock market decline. According to the rules, all joint stock companies limited (including those listed overseas) should sell state shares representing 10 percent their new issues in their initial public offering or additional share offerings to the general public and, in principle, the stock price is set by market.

Analysts say this is a mild, acceptable plan which can diverse the reduction pressure into initial and additional share offerings and, in the meantime, avoid reduction at prices too low.

Chinese Minister of Finance Xiang Huaicheng and Zhou Xiaochuan, chairman of the China Securities Regulatory Commission (CSRC) pointed out on the same day on different occasions that the reduction is beneficial to the healthy development of stock market. Xiang says by way of reducing the state shares part of the capital can return to the stock market since it is collected for setting up social insurance funds which in turn will enter into the capital market once entrusted to be operated by professional investment fund management institutions. While Zhou says the reduction is chiefly concerned with stock issuing and right transfer at primary market and therefore has limited impacts on secondary stock market.

Experts say the stock decline is smaller than expected and the reduction is able to make a soft landing to avoid more impact and panic on stock markets.



By PD Online Staff Li Heng


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