Shanghai yesterday launched a pilot scheme to introduce employee stock ownership in listed state-owned enterprises as a market-oriented reform of SOEs deepens.
The city government will allow five to 10 SOEs to trial the program, the Shanghai State-owned Assets Supervision and Administration Commission said in a statement yesterday.
The scheme follows a guidance made by the Central Economic Work Conference last month to adopt a market-focused approach on SOE reforms and to re-emphasize mixed-ownership reform.
The guidance stipulates that the total stocks owned by private shareholders of the SOEs taking part in the pilot should be higher than 10 percent of a SOE's share capital, and that the SOEs should have more than 90 percent of its revenue or profit generated from the market rather than rely on state subsidies.
Market insiders consider the ownership restructuring the most effective tool to promote SOE reforms in certain industries, instead of mergers and acquisitions.
"There have been various attempts on SOE reforms, but some of them aimed to improve the companies' balance sheet instead of real restructuring," said Sun Yu, head of China equity strategy at HSBC.
He mentioned merger of Baosteel and Wuhan Iron and Steel Corp as an example of M&A to improve the balance sheet.
He also said: "Cases so far showed consumer and raw material firms with a market valuation of 10 billion yuan (.5 billion) to 20 billion yuan are the best fit for the employee stock ownership program."