China Bans Management Buyouts for Some

China Bans Management Buyouts for Some




washingtonpost.com
China Bans Management Buyouts for Some

By ELAINE KURTENBACH
The Associated Press
Friday, April 15, 2005; 8:09 AM



SHANGHAI, China -- China on Friday announced it was banning executives at major state-owned companies from buying government shareholdings, acting to prevent theft of state assets as the country moves to reform its stock markets.

The ban on management buyouts follows news that the government has endorsed a plan for trial sales of state-owned shares in hopes of lifting stock prices.

Newspaper reports gave few details of the notice from the Ministry of Finance and the ministry-level State-owned Assets Supervision and Administration Commission. However, they said management buyouts would be permitted at small and medium-sized state companies.

China's stock market regulator said earlier this week that the government would proceed cautiously with stock market reforms to avoid hurting investors' interests.

A key concern appears to be avoiding stock buy-ups by state industry managers and their families. Allegations of such insider dealings have sparked numerous corruption allegations and protests by workers who accuse bosses of pocketing government money while selling off the source of their livelihoods.

Non-tradable state-owned shares account for about two-thirds of equity capital in companies listed on China's two domestic bourses. The government also holds controlling stakes in most major companies whose shares are traded in Hong Kong or other overseas markets.

Chinese leaders have pledged to gradually privatize a number of industries, while retaining state control in areas considered strategically important.

According to the new rules, managers who wish to buy assets of smaller state companies would be excluded from restructuring plans or asset evaluations. Managers found liable for poor corporate performance or those involved in fraud would also be excluded.

"Such irregularities and unstable factors have to be dealt with efficiently," the state-run newspaper China Daily cited Li Rongrong, minister of the state assets agency, as saying. "Management acquisitions of state assets and equities must be done in an orderly way."

China lacks the financing tools and assessment mechanisms to allow management buyouts at big state companies, the report cited Li as saying. He said the government was also drafting rules to govern the use of stock options on an experimental basis.

China had 150,000 state enterprises at the end of 2003. Most are controlled by local or provincial governments, though the largest and most strategically important are directed by the central government.

Earlier this year, the government ordered Communist Party officials to take a more active role in managing state companies, part of tighter controls imposed following a slew of financial scandals and corruption cases.

© 2005 The Associated Press