BIZCHINA / Top Biz News
Share-merger reform enters crucial period
(China Daily)
Updated: 2006-03-27 08:40
The State Council recently listed complete stock merger reform as one of
its key tasks this year. The country can no longer afford a split share
structure.
Less than a year after the China Securities Regulatory Commission issued
a guideline on share-merger reform last April, hundreds of listed
companies, with an aggregate market value of more than half of the total
capitalization of China's domestic stock markets, have carried out their
plans to circulate non-tradable State shares.
With many other listed companies rolling up their sleeves to follow suit,
it is fairly reasonable to expect that the reform will near completion by
the end of this year. And the State Council's call for action will surely
increase chances of success.
State share reform is of far-reaching significance to the sound
development of China's stock market.
Due to a decade-old split share structure featuring numerous non-tradable
State shares that account for about two thirds of all Chinese stocks,
individual investors in the country have long suffered frequent abuse of
power by majority shareholders, and the lingering threat of oversupply of
cheap State shares some time in the future.
Many believe, or hope, that the current reform will put individual
investors into a better position to hold majority shareholders and
managers accountable.
As State shares are made tradable, the pressure of takeovers will force
the later group to act in the interests of all shareholders, not just
their own. By including a compensation package in each of their
share-merger plans, majority shareholders have, at least nominally, made
up part of the losses individual investors suffer.
Now, as the authorities are resolved to press ahead with the reform,
which has quantitatively passed the midway point, it is time to take
stock of the progress, considering not only its speed, but also its
impact.
Given that reform has continued to pick up steam in spite of a few failed
cases, it is almost a sure bet that the overwhelming majority of the
country's 1,300-odd listed companies will jump on the bandwagon soon.
But whether some key blue chips adequately compensate their individual
investors and whether some particularly poor performers are promptly
dealt with remains unknown. Most of these two types of listed companies
are yet to be tested by the share-merger reform. Their response will
largely define the public support needed to advance the reform.
As to the impact of the reform, however, there is still a lot to worry
about.
Liquidity concerns weigh heavily on public investors, even though
majority shareholders all promised to float once-non-tradable stocks only
after a span of a few years. Not to mention the future pressure on
liquidity, any speculation of issuing new shares is enough to talk down
the domestic stock market immediately.
The fact that China's banks are flooded with savings betrays a chronic
lack of confidence among public investors in the domestic stock market.
It should be the utmost goal of all stock reforms to stimulate public
participation and thus boost development of the stock market to realize
efficient distribution of resources among the national economy.
In this sense, the share-merger reform is far from completion.
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