State Shares Sell-off U-turn no Cure-all: News Analysis

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Last updated at: (Beijing Time) Tuesday, June 25, 2002

State Shares Sell-off U-turn no Cure-all: News Analysis

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Nobody can doubt that the sudden cancellation of the controversial State share sell-off plan can easily rocket the depressive stock market into a new "Mecca" for shareholders. But has it hit the right nail on the head?

The government's announcement on Sunday to formally kill the provisional regulation on the liquidation of State holdings through the domestic stock market is an unmistakable correction of its early imprudence.

By ordering listed firms to sell State shares equivalent to 10 per cent of proceeds from domestic initial public offerings and additional share offers at market prices, the authorities tried to raise a considerable sum of funds for its underfunded social security fund.

Since its implementation last June, the planned sell-off hit snags, as disagreeable shareholders chose to vote by foot.

Shrinking market values and intensifying criticism on overpricing forced the authorities to suspend the move four months later.

Now, by finally giving up such an unpopular scheme, the government proves itself keen and responsive to reality.

Meanwhile, for numerous Chinese shareholders, they can give a long sigh of relief as a predictable market turnaround looms. And some even could hail their success in persuading the authorities to heed their call.

Naturally, listed companies could not be more happier as the revitalized market again bumps needed funds into their vessels.

All seem immersed in the windfall buoyancy.

However, the crux of the question that once shook the stock market so dreadfully remains intact.

Though the cancellation, as an expediency, can effectively rebuild market confidence for a fairly long period, the problematic stock structure of most listed companies will continue to undermine this market's fundamental role of optimizing resources distribution.

We certainly will not expect a cure-all, as the failed sell-off plan suggested how formidable the task is.

But just as a clear understanding of the difficulty and dimension of the task is a prerequisite for its accomplishment, decision-makers must press ahead with efficiency-oriented reforms of the stock market.

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