The increases of stock market valuations will be excluded from
government evaluations of state-owned financial firms, China's
Ministry of Finance has announced.
Analysts say the move is intended to deter financial firms from
making asset valuations based on state-owned capital in shares that
show only transitory gains.
Under regulations taking effect on March 1, equity value gains
from initial public offerings or share placement by state-owned
financial firms will no longer be recorded as the appreciation of
state-owned capital when the rates of value-sustained and
value-added state-owned assets were calculated.
The move comes after the country's stock markets have recovered
from five years in the doldrums to see drastic ups and downs in the
past month.
Following a week-long tumble, the equity value of China's
Shanghai and Shenzhen stock markets dropped below the 100 billion
yuan mark on Friday to 98.2 billion yuan.
Professor Jin Jihong, an expert on fiscal financing at the
People's University of China, said the stipulations would force
financial firms to focus on "concrete growth" rather than flimsy
equity value hikes.
Zhang Wenkui, deputy director of the Enterprise Department of
Development and Research Center of State Council, said financial
managers should pay more attention to corporate governance and
tangible profits in order to preserve state-owned capital and
enlarge the capital surplus.
The government introduced the rates of value-sustained and
value-added state-owned assets in 1995 to evaluate the management
of state-owned enterprises (SOE) in preserving state-owned
capital.
The annual evaluation by the State-owned Assets Supervision and
Administration Commission involves four grades from A to D in
descending order, with C representing a "pass". SOE managers'
salaries and bonuses are closely related to their grading.
The regulations say capital increases will be excluded as gains
if they result from assets evaluations for shareholding reforms or
market listing, or if they stem from changes in accounting
rules.
Meanwhile, capital losses attributed to non-profitable
expenditure required by the government, adjustments of accounting
rules and other forces such as natural disasters must be included
in the calculation.
The regulations identify indices applying to all financial
firms, including the net asset value per share, profit growth rate,
rate of return on common stockholders' equity and non-performing
debt rate.
The government will pay special attention to the capital
adequacy ratio of banks and the solvency capability of insurance
companies.
(Xinhua News Agency February 8, 2007)