With China's State-share reduction endeavor still in the air and non-tradable State-holdings dominating domestic listed companies, some experts suggest that the government stop new share issues to ease the mounting liquidity pressure on the bourses.

"Stopping the issuance of new shares would be the most prudent policy of the China Securities Regulatory Commission now," said Zhang Weixing, a securities analyst in Beijing.

The present twisted shareholding structure in listed companies has to be untangled first before more new stocks are issued, he said.

Zhang first made his name with his widely-discussed proposal to the CSRC on State-share selling in early 2002, when he suggested floating all non-tradable State shares by splitting the tradable shares at a fair price to ensure the interests of investors.

Now, he thinks that the government should come up with a practical measure to reduce State holdings as soon as possible instead of allowing more companies with similar problems to be listed.

Otherwise, it would further deepen the structural flaw that has already triggered many problems, such as corruption and mismanagement in many listed companies which only consider the bourses as cash cows.

However, opponents say that stopping new share issues is not practical at the moment, because many fund-thirsty listing applicants have already lined up at the bourses; and the present rate of IPOs is not enough to ease the jam.

Only the Shanghai Stock Exchange is currently allowing listings while Shenzhen Stock Exchange has not seen a new issue for more than two years. Given the market liquidity and capacity, at most one or two new companies can listed each week in Shanghai.

Where would the enterprises go if the listing channel is blocked, some ask.

But Zhang said they could resort to direct financing by issuing corporate bonds, which can be underwritten by securities companies.

Zhang's view is echoed by Han Qiang, a professor with Nankai University in Tianjin, who believes the pace of share issues has been too hectic over the past three years.

Issuing stocks is not the end of the matter, he said. On the contrary, if the newly-listed companies still adopt the old corporate structure, with a certain ratio of non-tradable State holdings, then the structural and management problems would continue to accumulate.

An investigation by the CSRC in the second half of 2002 found that about 96.7 billion yuan (US$11.7 billion) was embezzled by major shareholders in more than half of the listed companies.

Zhang said the existing listed companies should be rectified and the funds misused by the big shareholders returned to the market.

Wang Lianzhou, a renowned economist and a former member of the Financial and Economic Committee of the National People's Congress, said that Zhang's view is worth considering but it would certainly meet opposition from listing applicants, securities firms and intermediaries.

But he also admitted that the structural flaws in China's stock market are like a hanging sword which has to be removed as soon as possible.

China had tried floating some non-tradable State holdings in the secondary market in mid-2001 to finance the social security sector; but the experiment was stopped last June on strong reaction from the market, as stock indices fell on fear of a quick market expansion and the irrational pricing system.

The government did not give a timetable as to when the experiment would be resumed; instead, it has tried other measures to reduce State holdings, such as encouraging private negotiations on State-share transfer.

Li Rongrong, director of the State-owned Assets Supervision and Administration Commission, said in May that reducing and liquidating State holdings in listed firms complied with the reform trend, but the issue was sensitive.

With many irregularities to clear up, it requires much prudence and hard work to find a widely-acceptable plan, he said.

(China Daily August 29, 2003)