Source:
https://scmp.com/article/320820/share-sale-planning-intensifies

Share-sale planning intensifies

Nothing concentrates the mind like a deadline. Expected entry into the World Trade Organisation is producing a lot of last-minute thinking on the mainland, and a focus of the brainstorming is how to adjust to greater competition. One topic getting new attention is ownership of shares by the state.

In the financial sector, there are only two listed banks - Shenzhen Development Bank and Pudong Development Bank. The big banks may have to wait to sell shares to the public unless they create new entities that are not so heavily burdened with bad debts. But other banks, such as the Bank of Communications, Huaxia and Minsheng banks, are lining up support for a listing of their shares.

Another idea gaining currency is the sale of state shares to foreign partners. The company mentioned most frequently in such talk is colour-television manufacturer, Sichuan Changhong Electric.

Company officials have been dropping hints that they are negotiating with Philips of the Netherlands and Beijing appears to be encouraging the discussions.

In a recent interview with the Shanghai Securities News, Changhong's new general manager, Zhao Yong, described these talks as an 'open secret'.

Changhong, one of Beijing's favoured corporations, has been having problems more familiar to lesser state firms. Prices have been sliding under weak demand and keen competition, despite the formation of a cartel to prop up prices.

If Changhong teams up with Philips, it would have a real strategic partner that would be able to assist in a corporate overhaul.

Changhong is probably looking at Nanjing Panda, which has transformed itself - with the help of Ericsson - from a struggling also-ran in the television industry to a promising manufacturer in the mobile-phone sector.

Mr Zhao said he wants to see colour televisions accounting for less than half of the firm's business in the future.

Changhong has more than 53 per cent of its shares in state hands and only 34.74 per cent of its stock is traded on the market It could still maintain control while reducing the state's holding, and if it does there probably will be other companies in the same position.

Another idea that is getting attention is the possible creation of a Hong Kong-style Tracker Fund to help the state float some of its shareholdings. This has been pushed by Anthony Neoh, chief adviser to the China Securities Regulatory Commission, the market watchdog. Mr Neoh maintains that such a fund would allow the state to sell large volumes of shares without swamping the market.

Part of his proposal is to create a national stock index, a frequent theme in the official media of late. The mainland has separate indices for the Shanghai and Shenzhen stock exchanges and the concept of a national index dovetails with plans already being studied to merge the two bourses.

Analysts say this idea still faces a number of hurdles. For one, the quality of the state shares to be floated would hardly match up to those the Hong Kong Government bought when it made its controversial foray into the stock market. Investors might not be so eager to take the shares off the government's hands.

This is only a matter of pricing though - even garbage can be sold at the right price.

Talk of sales of state shares is often enough to unnerve local investors, so Beijing would probably want to offset its actions with bullish news. One positive measure could be a speeding up of action on a proposal to allow foreign firms to take stakes in joint venture fund management companies. A cut of the stock market stamp duty and widening of the daily trading band, now at 10 per cent, would also cheer investors.

Many of these measures are merely in the recommendation stage. But as Beijing stares the challenges of WTO in the face, the chances are growing that some of these proposals ultimately will be adopted.