CHINA may move to allow foreigners to buy non-tradable shares held by the government, a senior Chinese regulator was quoted as saying, a development that could lead to multinational companies taking a much bigger stake in the corporate sector in the country.

　Wang Jianxi, the assistant chairman of the China Securities Regulatory Commission, said in a recent interview that it is “likely” the government will permit foreign-funded companies in China, such as joint ventures and Chinese subsidiaries, to buy State-held shares, a CSRC spokeswoman confirmed Friday.

　“The direction of (the CSRC’s) efforts” is to allow such sales, said the CSRC spokeswoman, though she added that “it’s not something the CSRC can decide on its own.” If the plan is implemented, a vast new area of investment could open up for foreigners.

　Of listed Chinese companies’ total market capitalization of about US$560 billion, fully two-thirds is owned by the government and State-affiliated organizations, leaving only about US$180 billion worth of shares for regular investors. But overseas investors have even less to choose from in China’s stock market, because they are restricted to trading U.S. dollar and Hong Kong dollar-denominated B shares, which have a total capitalization of only about US$13 billion.

　In this kind of restricted investment environment, foreign investors are likely to jump at the opportunity to buy the non-tradable shares, though the shares have to be of good companies and the prices can’t be too high, analysts said. “The potential is huge.

　If the price is right,” said Yiping Huang, an economist at Salomon Smith Barney in Hong Kong. The Chinese Government probably has its own reasons for considering such a scheme, analysts said.

　One is that China needs to find a revenue source for its national pension fund, which is expected to become increasingly strapped for money as China’s population grows older in the decades ahead. In fact, the Chinese government last year decided to raise revenue for the pension fund by selling State-owned shares to the secondary share market, but worries about a flood of newly tradable shares entering the market caused Chinese stock prices to plunge.

　The Chinese government decided to scrap the plan in June of this year. China would be able to leave the secondary share market out of the picture altogether, however, if it directs revenue to the pension funds from State share sales to foreigners.

　More foreign ownership of listed Chinese companies could also boost the quality of corporate governance at the companies, Salomon Smith Barney’s Huang said.

　Many listed Chinese companies have lax accounting and management standards, something analysts blame on excessively small stakes held by non-government investors, limiting the investors’ ability to press for improvements in the way the firms are run.

　It is still uncertain whether the Chinese Government will go through with the new State-share plan. Before it can become reality, the plan would need to get the green light from the Ministry of Finance, which is in charge of State asset transactions, and the Ministry of Trade & Economic Cooperation, or MOFTEC, which has jurisdiction over foreign investors, the CSRC spokeswoman said. And the State Council, China’s cabinet, will have to make the final decision on the plan, she added. (SD-Agencies)