China again gears up to unload government assets

23 Feb, 2004

China may never have a better chance than now to unload more than $200 billion of state-owned shares that it has wanted to sell for years.
The huge disposal, attempted unsuccessfully in 2001 and revived this month, will hold back the Chinese share market until it is done, analysts say. And right now it can go ahead with the advantage of a strong rally in share prices.
"Now is the opportune time for such a sell-down to take place," said Nicole Yuen, head of China equities at UBS.
"The non-tradable shares are the bottleneck in China's securities markets. The sooner this issue is resolved, the better."
The benchmark Shanghai composite stock index has surged around 30 percent since hitting a four-and-a-half-year trough on November 18, buoyed by factors such as repeated government pledges to help the bourses.
Li Rongrong, the head of the State Asset Management Committee, said this month that Beijing planned to resume selling holdings in state firms on the local market, albeit gradually.
Other options include Hong Kong IPOs and private placements.
The government needs to sell the shares for two reasons.
First, it could use the money. Economists see the budget struggling to cover China's growing pension bill.
And by getting out of the shareholdings, Beijing will push the sheltered companies out of bad business practices, forcing them to deliver the profits demanded by private investors.
When the government last tried to sell the shares in June 2001 prices dived 30 percent in four months. The plan was halted to forestall investor ire.
But with financial reform taking on unprecedented urgency in 2004, analysts say Beijing must step up a process of transforming China's debt-addicted companies even as it tackles 1.59 trillion yuan ($192.1 billion) in bad debt at state lenders.
Partly because of the government disposal plan, bankers expect some $15 billion in Chinese listings overseas and in Hong Kong this year. Two candidates are state property lender China Construction Bank and international airline Air China.
But Hong Kong and foreign markets are an option only for China's biggest and best firms, so the domestic market will have to absorb most of the state shares - and is not looking forward to it.

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