The mainland is to allow for the first time trading of state shares, which account for a large proportion of listed companies' shares, according to a senior official. 'In theory, there is no problem in listing state shares,' Zheng Silin, deputy director of the State Economic & Trade Commission, said. He said the 15th congress of the Communist Party, in September 1997, had redefined state ownership by saying it did not depend on a specific percentage of ownership. 'But we will be very cautious in listing them as their amount is larger than the number of stocks traded in the market. We must be prudent in maintaining the stability of the market,' he said. When Beijing set up its stock market system in 1990, it created three kinds of shares: state shares, legal person shares and tradeable shares. Only the third category was sold to investors, typically accounting for about one-third of the share capital. The other two kinds of shares have remained in the hands of state firms and institutions, a guarantee the state retains control of the listed companies. Since then, the owners of these shares have urged the government to allow them to sell these shares, so that they could realise the value of their assets. But the China Securities Regulatory Commission refused, to prevent the market being flooded with shares and to preserve state control of the firms. The commission has annually issued an order reiterating the ban on trading of the two kinds of shares. Mr Zheng did not explain in detail the reasons for the change in policy. Economists see the restriction as increasingly out of date, with 20 years of market reform drastically changing the pattern of ownership on the mainland and Beijing adopting a more flexible definition of state control, so that it does not need to have 51 per cent ownership of an enterprise. Mr Zheng and fellow deputy director Wang Wanbin devoted most of the news conference to explaining an improvement in the performance of state companies. As of the end of 1997, 6,599 or 39.1 per cent of 16,374 large and medium-size state firms were in the red, Mr Zheng said. By the end of last year, this number had fallen to 5,121. In the first half of this year, state firms and holding companies had profits of 24.31 billion yuan (about HK$22.67 billion), he said. He ascribed this to the closure of 'redundant and wasteful' capacity in the first half of the year, such as 1.8 million cotton spindles destroyed leading to the lay-off of 200,000 workers and the closure of 23,168 small coal mines, which reduced output by 100 million tonnes. Mr Wang said that three new asset management companies - Hua Long, Chang Cheng and Dong Fang - would soon be set up to take over the bad debts of three of the four major state banks. The first, China Cinda Asset Management, was established in April to take over the bad assets of the Construction Bank.