China's Stock Market Non-tradable Shares Pricing Issues

Non-transferable shares are the unique issue in Chinese stock market. Non-transferable shares lead to the interest confliction between the holders of common stock and those of non-transferable share, and further result in various other issues in the governance and regulation of listed companies. In brief, the issue of non-transferable shares is the key to the problems of Chinese stock market.The long-term solution to this issue is inevitably to realize the total transferability of all shares. One pre-condition for transferability is the pricing for such non-transferable shares. The issue of pricing is the key to the balance of interest of all related parties, which is addressed in Chapter One.Chapter Two summarized the various methods for pricing of non-transferable shares, which include arbitrary pricing methods and market pricing methods. Arbitrary pricing methods include net asset pricing method, expected earning pricing method and price difference compensation method. Market pricing methods include price competition method, attaching rights pricing method. After analyzing the advantages and disadvantages of the different pricing methods, the author pointed out that we should not only consider the academic perspective of the pricing issue for the non-transferable shares, but more importantly, we should consider how to balance the interest between all related parties, which is at the core of the issue.The author proposed in Chapter Three a pricing method by establishing a "X Stock Market", i.e. a market where the transferable shares and the non-transferable shares can be exchanged, which offers a dynamic and indirect pricing for non-transferable shares. In Chapter Four, the author further detailed the proposal for X Stock Market, analyzed the objectives of this market, the principles & rules of transactions, in particular the impact to consistency of interest of shareholders. Potential issues related to such market were also analyzed with possible solutions raised.At the time that this article is about to be finished, the China Securities Regulation Commission issued the Notice On the Issues Related to the Trial Reform of the Separation of Shares of Listed Companies, which launched the trial reform of the separation of shares of listed companies. The author offered his comments and suggestion related to this policy, which is consistent with the objective of this article, i.e. to contribute the solution of practical issues.