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Most of the listed companies in Chinese stock market have common and State-owned shares, which were limited in floating. The Stated-owned shares defines government possessed assets consisted in a certain evaluated process when stated-owned companies reformed into the qualified company. It characterizes that a total liabilities and net worth is included, but limited
proportions.
Currently, the floating shares are only 1/3 of total issued stocks from listed companies and 2/3 are of the non-floating shares. The reformation of stated-owned stocks means the non-floating shares convert to the floating shares. Regally, it called Split Share Structure (股權分置) correspondingly.
Chinese and their authorities is currently processing this reformation drastically and they rapidly renovate security legislation since April 2005.
If this reformation completes, the stated-owned asset management would be transferred to the floating shares and, finally, Chinese monetary circulation system would become a capital market economy system.
It plans that non-floating shares of 20 enterprises stocks converts to the floating shares weekly until the end of 2006. The conversion method of stated-owned stocks to the floating shares is to approve 2/3 of stockholders who owned the non-floating shares in ‘A’ security market. The non-floating shares and floating shares stockholders have to deliberate the method of stock effacement simultaneously.
The floating shares will shortly be released and directly influenced with the security market after completed this reformation. Chinese government enforces next three method; firstly, the reformation of split share structures, secondly, the non-floating shares prohibition of selling within an year, thirdly, stockholders who owned over 5% of the total value would forbid a
selling as well. At the same time, the institutional investor has been recommended the acquiescent intervention as well as the foreign strategical investors induced the investments for solving secondary problems caused by the conversion.
Meanwhile, the non-floating shares converted enterprises have given a certain advantages, such as issuing new bonds, bank credits and shares collateralized loan etc,. If those reformation completed successfully, the management system and co-operated governance of the listed companies would become transparented. Also the efficiency of the capital market would be improved by the merged effectiveness from ‘B’ and ‘A’ security markets.