A notice on the management of state-owned stock in China's share reform was issued at 3 P.M. on Friday, as the country's two security markets were about to close.

The notice, issued by the State-owned Assets Supervision and Administration Commission (SASAC), and the last of a series of key documents China has issued since April, serves to initiate the comprehensive share reform.

According to the notice, the reform plans of state-owned firms, except for the 169 major ones, should be approved by the provincial agencies in charge of state-owned assets instead of the SASAC, so as to "simplify procedures and improve efficiency," said a SASAC official.

After the reform, listed state-owned firms should include stock prices as an indicator to assess managers' performance, and make stock rights part of their payments, said the notice.

"As the stock market cannot adequately reflect the real value of listed companies so far, we will introduce stock price as an assessing indicator only in a gradual way," said the SASAC official.

Companies have the right to decide how much stock they want to hold to ensure their controlling position, but their decision should be included in the reform plans and be approved by the administration agencies, said the notice.

The SASAC issued a document in June asking state-owned firms to decide the least proportion of stocks they should hold after the share reform, but neither document stipulated the proportion.

Compensation for tradable share holders, as prices of shares drop due to large numbers of non-tradable shares flowing into the market, has been the key issue in the reform.

The notice encourages state share holders to apply various measures, including issuing warrants, to compensate the tradable share holders, instead of, as most of trial companies have done, simply giving them more shares.

The split stock market in China, consisting of one third tradable shares and two thirds of non-tradable ones, has been a major obstacle to proper market function. Majority share holders, mainly state-owned firms, do not care about stock prices, and minority share holders owning tradable shares can hardly exercise their rights.

The Chinese government initiated the share reform on the stock market in late April. After two rounds of trial reform involving 46 listed companies, all policies are now in place.

(Xinhua News Agency September 10, 2005)