Government calls on big companies to come up with proposals for disposal of non-tradable stocks The central government has urged leading state firms to submit proposals to sell non-tradable shares in a bid to expand a month-old trial scheme that aims to restore investor confidence in the stock market. The move, spelled out in a 10-point guideline document, reflected Beijing's determination to resolve a structural problem that Xinhua said 'puts public investors at a worse position than the actual controllers of the listed companies'. The guidelines issued yesterday said 'large to medium-sized enterprises, especially state-controlled listed firms ... will set a good example in providing investors with stable expectations from the reforms'. No companies were named in the document. Fund managers and analysts said bringing in large state-owned enterprises would complete the reform picture. 'Reforms need to be thorough ... even if it takes time [to bring about change],' said Ha Jiming, the chief economist at China International Capital Corp. 'The first batch of companies picked [last month] weren't representative [of the broader market].' China chose four small private and local government-backed firms to pilot a scheme to sell non-tradable shares in April. Shanghai Zi Jiang Enterprise Group, Sany Heavy Industry, Tsinghua Tongfang and Hebei Jinniu Energy & Resources have a combined market value of about 19.3 billion yuan, or 0.62 per cent of the 3.12 trillion yuan in market capitalisation. The guidelines, issued by the China Securities Regulatory Commission and the State-owned Assets Supervision and Administration Commission, cautioned that reforms must be made under the premise of protecting the interests of millions of investors. The regulators also warned that they would 'severely' punish anyone using insider information and manipulating the market during the reform process. About 65 per cent of the shares - equal to 2.08 trillion yuan in market value - of mainland listed firms are non-tradable state shares and legal-person shares held by central and local governments and state-owned companies. China's last attempt in 2001 to help listed firms dispose of non-tradable shares sent the stock market into a spin and ended in a swift retreat by Beijing. Traders said they were more optimistic the reforms would work this time. 'The market has fallen to record lows, and share prices are close to net asset values,' said one fund manager with a leading brokerage in Shanghai. For instance, Maanshan Iron & Steel with a net asset value of 3.38 yuan per share, yesterday closed at 3.02 yuan in Shanghai. The broader Shanghai Composite Index and its Shenzhen counterpart have fallen about 16 per cent since the start of the year. HSBC's China economist Qu Hongbin said bringing into play the large state firms was a significant step in 'properly addressing the issue' in the overall privatisation programme where proceeds in large part would plug a shortfall in the state pension fund. 'The challenge is to balance the government's interests and interests of the small investors,' Mr Qu said. 'It's a tough job and they really need to tread carefully.'