Chinese government quietly drops controversial share sell-off scheme
Chinese stock prices staged a powerful rally of nearly 10% last week after the government shelved an unpopular scheme to sell off shares in state companies. Introduced in July, the plan was aimed at financing a new social welfare fund, while also acting as a mechanism to unwind government involvement in the enterprises. Now it appears that the scheme has been unceremoniously scrapped after the price of domestic ‘A’ shares fell for six days in succession, bringing the index to a 21 month low.
Under the scheme, state enterprises selling off their shares were forced to set aside 10% of the proceeds – and any additional share issues – for the welfare fund. However, the scheme was massively unpopular with ordinary investors who claimed that it was depressing across-the-board share prices by massively introducing liquidity into the market. They argued that since Chinese share prices are set artificially high, by forcing the remaining 90% of shares to be sold at market prices, the government was profiting at their expense while also harming market confidence. Their argument was supported by the state watchdog China Securities Regulatory Commission (CSRC) which blamed the scheme for the 30% fall in Chinese share prices that has occurred since July.
In announcing the termination of the scheme, the CSRC said that while it had always backed the state sell-off principle, it nevertheless regarded it as ‘a long term task that needs contstant improvement.'
