BIZCHINA / Backgrounder
Split share reform
(CRI)
Updated: 2006-09-26 09:48
Q: What is the split share structure?
A: The split share structure refers to the existence of a large volume of
non-tradable state-owned and legal person shares. This means only about
one-third of the shares in domestically listed firms float on the stock
markets.
Q: Why the structure should be reformed?
A: The structure puts public investors in an inferior position relative
to the actual controllers in making corporate policies and disposing of
the firms' profits and assets. The idea of settling the problem of
split-share structure has, as early as on 2nd February 2004, been touched
upon in the Several Opinions of the State Council on Promoting the
Reform, Liberalization and Stable Development of the Capital Market
(commonly known as the "Nine Provisions of the State Council"). The Nine
Provisions of the State Council clearly suggest that "the issue of
split-share structure must be settled in a positive and reliable manner.
In solving the problem, we should respect the rule of the market and
exercise diligence in protecting the lawful rights and interests of
investors, especially public investors."
Q: What stage of the reform is going on now?
A: The reform is in its mature stage. On August 24, five State
departments announced guidelines pushing the reform process ahead since
the pilot projects on share mergers had proved successful and were well
received by the markets. According to the guidelines, more than 1,400
listed companies can "gradually'' convert their non-tradable shares. From
May this year, a total of 46 listed firms in two groups took part in the
trial reform of split share structure, and only the reform program
proposed by one of the firms was vetoed by public stock holders at a
plenary session of the shareholders of the company as they were not
satisfied with the compensation offer. According to Shang Fulin's speech
in May, the first phase of the reform is the ongoing trial program.
Through the pilot projects in a few companies, China will explore methods
on how to form the stock prices by the market while maintaining the
stability of the market. In the second stage, with continuous feedback
from the trial program, China will issue a series of related rules and
regulations to create a favorable conditions for further reform, said
Shang. The rules are aimed to protect the legitimate interests of
investors and enhance the adaptability of the market for reform. In the
third stage, with experience from the first batch of companies, China
will expand the pilot projects.
Q: What is in the reform?
A: The reform concerns the essential management transformation of
state-owned assets in China. CSRC statistics showed that a total of 1,377
domestic companies were listed on China's A-share and B-share stock
markets, most of them are state-owned ones. According to the reform
proposal, the companies or major shareholders should compensate about
three shares per 10 shares totradable shareholders so as to make all
their shares tradable. However, investors in China's B-share and H-share
markets will not take part in the A-share market reform and therefore
will notget compensation.
(For more biz stories, please visit Industry Updates)
Chinesepod
