(FT, Oct 24, 2005) The Chinese government is considering transferring shares in state-owned companies to the national pension fund, in what could be the first step in a transformation in the management of the public sector.

The agency that administers state-owned companies has begun consultations with other parts of the government about a plan to allocate 10 per cent of any domestic share issue by state-owned companies to the pension fund. The idea is to place more market discipline on the managers of state-owned companies, because the pension fund would in theory be more concerned about share price performance than other government bodies.

The plan would also allow for an injection of assets into the state pension fund sector, which needs to build up resources over the next decade before the Chinese population starts to age rapidly.

The proposal is part of a reform package for the capital markets that includes a plan to be rid of the large overhang of shares in listed companies that could not be traded on stock exchanges.

The reforms have been one of the reasons for a revival of the Shanghai stock market, which has surged 76 per cent since the middle of last year and has taken part in the record-breaking listing for Industrial and Commercial Bank of China.

The consultation is being run by the State-Owned Assets Supervision and Administration Commission, which manages public holdings in industry.

For the last year, state-owned companies listing overseas have had to allocate 10 per cent of the new shares to the National Council for Social Security Fund, the central government-run pension fund.

The government proposed a similar transfer of assets to the pension fund three years ago, but the plan was dropped after the stock market fell sharply on fears that it would result in a flood of new shares coming onto the market.

Given the collapse of previous initiatives and the potential for bureaucratic in-fighting, Sasac has been playing down the significance of the consultation process.

However, many academics and financial market professionals believe it is a trial balloon for relaunching the transfer policy.

¡°It is a clear indication that Sasac is revisiting the idea of injecting assets into the National Council,¡± said Peter Alexander, head of Z-Ben Advisors, a Shanghai-based consultancy that specialises in the fund management industry.

If the proposal is put into effect, analysts believe it could be the first step in a broader injection of state assets into the pension system.

The discussion about transferring holdings to the pension fund comes at a time when Beijing is debating a proposal to force state-owned companies to pay dividends, in order to raise funds for a stronger social security network. Any asset transfer could become part of this strategy if the pension fund then started to receive dividend payments.

The management of local government pension funds has been called into question by a scandal in Shanghai over allegations that a third of the city¡¯s pension fund was invested illegally. The city said on Tuesday that Ling Baoheng, head of the Shanghai branch of Sasac, and his deputy had been detained as part of the probe.

Source:FT
tag:Chinese