Shareholding System Reform in China

Shareholding System Reform in China

Privatizing by Groping for Stones

Shu-Yun Ma

Since the 1980s, there has been a global wave of transfer of state assets to private hands. China is a relatively late participant of this worldwide trend, yet, in the last decade it has emerged as one of the largest privatizing countries. Shu-Yun Ma argues that China’s privatization is not based on any grand blueprint; rather, it is privatization by ‘groping for stones to cross the river’, a well-known metaphor often attributed to Deng Xiaoping, meaning that the reform simply proceeds on a trial-and-error basis without being guided by any theory.

Chapter 8: Conclusion: Privatizing through Groping for Stepping Stones

Shu-Yun Ma

Subjects: asian studies, asian business, asian economics, business and management, asia business, international business, economics and finance, asian economics, financial economics and regulation, political economy, politics and public policy, political economy


8. Conclusion: privatizing through groping for stones SHARE CONVERSION AS ‘SHOCK THERAPY’? The ‘share conversion’ reform discussed in the last chapter represents an important breakthrough in China’s privatization. By issuing bonus shares to individual shareholders, it has diluted state ownership in China’s listed companies; and by making state-owned shares tradable, it has facilitated further sale of state assets in the stock market. In late 2006, Shang Fulin, chairperson of the China Securities Regulatory Commission and a proposer of the share conversion reform, announced that the reform ‘had basically been accomplished’. That is to say, it took only about 20 months (from May 2005 to end of 2006) to complete the whole share conversion reform. The stock market welcomed the change with a 167 per cent rise in total capitalization during this period, and it was widely expected that a ‘golden decade’ for China’s stock market would ensue. As asserted by a Chinese commentator, the share conversion reform was the ‘fastest and smoothest’ change in China’s economic system reforms (NR, 10 January 2007; SZB, 15 January 2007; ZS, 22 January 2007). This dramatic change has led some Chinese scholars to interpret the share conversion reform as ‘shock therapy’. The announcement of the reform on 30 April 2005 (the day before the stock exchanges closed for the weeklong May Day holiday) without any major hints in advance was described as a ‘sudden attack’ of the stock market and ‘an arrow that has no return’ (SZB, 8 May 2006). When the list of...

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