Four A-share companies are to start experimenting by circulating nontradable shares, the first trial since China's securities regulators agreed to resume the State share selling scheme last month.

The pioneering four are machinery maker Sany Heavy Industries Co Ltd, computer service provider Tsinghua Tongfang Co Ltd, packaging materials manufacturer Shanghai Zi Jiang Enterprise Group Co Ltd and coal and cement producer Hebei Jinniu Energy Resources Co Ltd.

All four issued circulars yesterday to reveal their intention to gradually float shares in companies that are still not traded in the bourses.

As a result of the planned economy, about two-thirds of the shares in domestic-listed companies are still nontradable, either held by the State or legal bodies.

The structure has significantly affected market liquidity and transparency and put tradable shareholders at a disadvantage. Regulators have vowed to solve the problem and released guideline regulations on the experiment on April 29.

The four pilot companies, whose shares were suspended from trading yesterday, are all small and medium firms, including one joint venture, a private firm and two controlled by the State. They have posted solid earnings, with a good track record.

The four companies are expected to give away a certain amount of shares or cash to the holders of the tradable shares by way of compensation when the nontradable shares are floated.

Details of the plans are to be announced in the coming days after approval by their board meetings.

The proposals then have to be passed at the general shareholders' meeting before they are properly implemented.

Analysts say experimenting with floating the nontradable shares in listed companies is a major breakthrough in the country's stock market reform, but it will face many challenges.

Instead of setting unified standards for pricing, regulators have given the listed companies much freedom to decide on their own schemes for the experiment, but asked them to respect the interests of minority shareholders, with sufficient disclosure.

"The companies that are planning nontradable share sales have to come up with market-oriented proposals that are acceptable to the tradable shareholders. Otherwise it would be hard to get them passed," said a fund manager with Dacheng Fund Management Co, who preferred to remain anonymous.

More listed companies are expected to join the experiment later on, so the success of the trial by the first four will affect the pace of the reform, said Tian Yi, an analyst with United Securities Co.

Only those with solid results and regular information disclosure should be allowed in the experiment and more blue-chips should join, Tian said, while companies with irregularities should first focus on their internal reforms.

(China Daily May 10, 2005)