On The Development Of Diversified Ownership Structure For Chinese State-owned Companies Through Capital Market

Diversified ownership economy is not a new thing in China. In fact, it has been developed over 30 years since 1978. At present, most of companies in China have been in diversified ownership structure.But now, most of state-owned companies are in the monopolized industries like Banking, Energy sources, Communication industry and so on. They are lack of innovation and can’t compete globally under the policy protection. On the contrary, some well-known companies like Lenovo, Huawei, Tencent, Alibaba are non state-owned enterprises. Insider control because of the absence of property rights agent and non market-oriented personnel placement and performance appraisal system make state-owned companies less energetic.Actively developing a diversified ownership economy is advocated by the Third Plenary Session of the 18 th CPC Central Committee in Nov. 2013. More state capital, collective capital and private capital will be integrated into diversified ownership. More non-state shares will be allowed in State Capital investment projects. Diversified ownership enterprises will be allowed to utilize employee stock ownership to form a vested community of capital owners and workers.Through policy interpretation and theory combined with practices, this article studies particularly the destination and meaning of the reform, and analyzes typical cases happened in Chinese capital market in- depth in order to find ways of developing diversified ownership economy through capital market. This article includes the following sections:1. The first section reviews the beginning and the development of the diversified ownership economy. Based on the review, the second section analyzes the background and the necessity of the diversified ownership reform at the present stage. This article thinks that it is necessary to further develop diversified ownership reform. The diversified ownership reform will make China economy more energetic, further regulate corporate governance, strengthen market mechanism, and will be benefit both for state-owned capital entry and exit and for further development of non state-owned economy to get dynamic balance.2. Through analysis and interpretation of policies published by local government of some provinces, it is easy to find that measurements of developing diversified ownership reform adopted by local governments are similar. The main measurements are asset securitization, holistic listing of the state-owned enterprises, diversification of the main investors, market-oriented operation management, joint venture cooperation, introduction of strategic investors, acquisition and reorganization. They all consider that state-owned capital should enter in or exit from enterprises properly and flexibly according to the characteristics of the industries they are in. They also consider that corporation governance should be established and stockholders, directors, supervisors as well as senior executives should exercise their powers and duties according to stipulations of Corporation Law. Stock ownership incentive and employee stock ownership plan will arouse the enthusiasm of managers and employees, but corruption and infringement of national or collective interests will always happen if the plans are implemented improperly. Capital market, like securities exchanges, various kinds and all levels property rights transfer agencies is an important place to fulfill above-mentioned measurements, because capital market can offer function of pricing, liquidity, exit mechanism, and capital market has the characteristics of information publicity, high attention, sound supervisory mechanism. Therefore, the article theoretically infers the conclusion that development of diversified ownership reform will be with the help of capital market.3. From the case of Greenland Group restructured and backdoor-listing, the article make an empirical study on employees and non state-owned capital attending and fulfilling diversified ownership reform through company restructure, capital increase, and holistic listing. From the cases of Sinopec attracting strategic investors and JJIH attracting Hony Capital with non-public offering, the article illustrates that non-public offering is an important measurement to develop diversified ownership reform in capital market, both for monopolized and non-monopolized industry. Preferred stock is a novelty, which began with previous trials in China from early 2014. From the case of SPD Bank non-public offering preferred stock to optimize its stock structure, to attract non state-owned capital, and to realize holistic listing, the article manifests that preferred stock is also very important to develop diversified ownership reform as a new tool. With sustained briskness of acquisition and reorganization recently, from the policy revise preferences on this topic by the State Council and CSRC since early 2014 and the case of SHINVA mergering Yingde Biology, the article draws a conclusion that with the policy deregulation, acquisition and reorganization will play an irreplaceable role on developing diversified ownership reform. Respectively from different level of listed companies, parent companies and subsidiaries, combined with related statistical data and cases, this article proclaims the importance of carrying out stock ownership incentive or employee stock ownership plan and the difficulties still remained on this field. Through theory combined with practices, this article finds ways to develop diversified ownership economy through capital market.4. This article also alerts corruption during the progress of the diversified ownership reform through negative cases, lists legal problems that we should pay close attention to and emphasizes the importance of open market operation.5. Finally, through summarization, this article draws a conclusion that capital market is inevitably main battlefront of developing diversified ownership reform. With the tools of capital market, such as attending restructured and public listing, refunding to attract strategic investors, acquisition and reorganization, offering referred stocks, carrying out stock ownership incentive or employee stock ownership plan, all can develop diversified ownership successfully and also can guarantee benefits of all parties, therefore promote economy development and social progress. In addition, developing diversified ownership reform through capital market also change the situation usually happened in the past, that is, policies leading reform, handling special cases with special methods, black box operation. It marks that democratic legislative system and marketization forward ahead and should be advocated hard.