As one of China's first state-owned enterprises run on quasi-market principles, Citic Group was at the forefront of the nation's economic reforms under Deng Xiaoping. Now the conglomerate looks set to replay its role in the reform of state-owned giants by planning to inject almost all its assets into its Hong Kong-listed unit, Citic Pacific. It also will likely relocate its headquarters to Hong Kong.
The latest development will open the group - whose interests span from steel and property to banking, telecommunications and broadcasting - to Hong Kong's more stringent regulatory regime and the scrutiny of investors.
If the plan is followed through, it will clear the path for other state-owned companies to follow suit. Besides being a huge boost to Hong Kong's stock market, it also, more importantly, will introduce greater corporate governance and international best practice for these enterprises.
This will potentially mark a breakthrough for reform under President Xi Jinping to allow market forces to play a "decisive role" in shaping corporate practices on the mainland.
The Citic plan will not be without hiccups. State-owned enterprises are barred from selling below their book value. Yet Citic Group's crown jewel, a 61.9 per cent stake in Hong Kong-listed China Citic Bank, is trading at 0.7 times book value. The stake accounted for 62 per cent of the book value of the assets to be injected. The total assets have been estimated to be worth 225 billion yuan (HK$283.6 billion) at the end of last year, though an independent valuation is pending.
Beijing will have to decide whether to grant an exemption on the book-value rule: lift the ban altogether for some or all state-owned companies; or wait till the assets in question rise above book value. The last option may be the easiest to prevent significant losses to the state, but will delay the listing plan in an unpredictable way.
Still, these are manageable risks. By forcing state companies to face market scrutiny, they will require more professional management and less reliance on the largesse of the state. They will have to enhance their standards of transparency and accountability.
Ultimately, that would be good not only for those companies but the overall Chinese economy, whole swathes of which are currently dominated by these state-owned enterprises.