The State Council unveiled rules aimed at reducing State holdings in companies in order to finance social security funds late on Wednesday.
The long-expected regulation, which took effect on Tuesday, covers transferring or selling of State shares in listed firms.
It said companies launching IPOs (initial public offerings) or additional share issuing should at the same time sell their State holdings equivalent to 10 percent of the offering value to public investors. The money raised will be put into the social security funds.
The rules also apply to firms seeking an overseas listing.
Pricing of the shares sold will be based on demand in the market.
In addition, a handful of listed companies will also be selected to place or buy back State shares on an experimental basis, depending on the funding needs of social security funds and the condition of the market.
Listed companies which transfer State shares should also contribute a certain ratio of income to the social security funds, but the exact ratio is still to be decided.
The Ministry of Finance will design rules for the management of social security funds later.
And the China Securities Regulatory Commission (CSRC) will also come up with regulations on information disclosure in the selling of State shares by listed firms.
Minister of Finance Xiang Huaicheng said the reform is not only a timely cure for the fund-thirsty social security sector, but also very positive news for the stock market.
While helping relieve the fund-shortage pressure for the social security sector, it should also push listed companies to lower the ratio of State holdings and diversify their shareholding structure.
More participation of private shareholders would enhance public supervision in the management and operation transparency of listed companies, said Xiang.
CSRC Chairman Zhou Xiaochuan said it would help listed companies improve corporate governance and upgrade quality.
Moreover, the government will invite professional fund managers to operate the social security funds and some of the funds will be reinvested in the stock market to ensure a benign recycling of capital.
Presently, shares owned by the State and corporations account for about two-thirds of the total stocks in domestically listed companies and are still non-tradable as the result of the lingering influence of the planned economy.
They totalled 252.7 billion shares by the end of March, according to a report by the Finance and Securities Institute (FSI) of the Renmin University of China.
"The reform to cut State holdings is closely connected to the entire economic restructuring in China. It will also promote positive changes in the social security fund management and investment scheme," said Wu Xiaoqiu, director of FSI.
(China Daily 06/15/2001)
