Doubts raised as OTC bourses woo private capital
Equity exchanges seek investors for state-owned assets but questions remain over transparency
Speculation is swirling over whether the back-door listing of Citic in Hong Kong will spawn imitators in the near future, with asset transfers involving state-owned enterprises greeted with enthusiasm on the mainland's over-the-counter equity trading exchanges.
The China Beijing Equity Exchange, one of four bourses officially designated to handle asset transactions for non-public state-owned enterprises or their unlisted subsidiaries, has started to woo private capital in line with Beijing's calls for mixed ownership in dominant state juggernauts that enjoy cosy monopolies in the oil, power-generating and telecommunications markets.
There are lingering questions whether those exchanges would be able to ensure transparency and fairness in the matter.
"I kind of suspect the professionalism of the exchanges because they don't appear to have the skills and expertise in matching the buyers and sellers," said Tan Yaling, a director of the China Forex Investment Research Institute.
"Their work is more politically driven and they may not be able to create a healthy market for sustainable development."
Beijing conducted several rounds of SOE reforms in the past two decades, hoping to roll back government ownership in some of the sectors. But the effort did not pay off since officials were hounded by fears of state asset erosion due to unreasonable pricing of government shares.
Unlike an initial public offering on the stock market, where stock prices are set through a relatively transparent price consultation process, the prices of the assets on the OTC markets are decided by potential sellers and buyers.
An official with the Beijing bourse said it was convening cash-rich private investors to promote some of the state-owned assets listed on it, adding that the government's proposal for "mixed ownership" in state-run firms had created tremendous business opportunities.
Economists said the trading system would create a hot bed for irregularities unless the OTC market operators could fully enlist the help of law firms and accounting firms to provide professional services.
Vested interest groups were also putting up stumbling blocks to the participation of private capital.
Li Yining, one of China's most renowned economists at Peking University, told China Central Television recently that SOE reform would be a hard fight and would be difficult to achieve.
A former teacher of Premier Li Keqiang, he said SOE reform could not be achieved with only the leaders' resolve. Instead, it required careful thought and painstaking effort to ensure reforms were smoothly carried out.
The Communist Party decided to cede state ownership in dominant corporate giants last year in order to enhance corporate governance.
Stock market listings are believed to be the primary choice in diluting the state's ownership, benefiting state-run enterprises in fundraising while subjecting them to increased public scrutiny.
Last month, Citic, the mainland's flagship investment company, announced it would inject its major operating assets into Hong Kong-listed subsidiary Citic Pacific.
State leaders are said to be adamant about making the new round of SOE reform distinct from previous attempts, using their clout to force the state firms into action with many of the company bosses interpreting the decision as a political task rather than a pure business tactic.
The four equity exchanges - in Beijing, Tianjin, Shanghai and Chongqing - were nominated by the State-owned Assets Supervision and Administration Commission in 2004 to deal with the disposals of government stakes in state firms.
Equities and assets traded on the bourses are not qualified for stock market listings and the central government describes them as complementary trading platforms to the stock exchanges in Shanghai and Shenzhen.
Last year, turnover on the Beijing equity exchange topped 1 trillion yuan.