The privatisation process and evolving share ownership structure of Mainland China's leading state‐owned enterprises
| DOI | https://doi.org/10.1108/13581980610644743 |
| Pages | 37-46 |
| Published date | 01 January 2006 |
| Date | 01 January 2006 |
| Author | Paul B. McGuinness |
| Subject Matter | Accounting & finance |
The privatisation process and
evolving share ownership
structure of Mainland China’s
leading state-owned enterprises
Paul B. McGuinness
Department of Finance, The Chinese University of Hong Kong, Hong Kong,
People’s Republic of China
Abstract
Purpose – China is in the midst of an aggressive privatisation process in which key state-owned
enterprises have already tapped, or have plans to tap, international capital through initial public
offerings in Hong Kong. Aims to critically assess two major SOE bank IPOs, the Bank of
Communications and China Construction Bank offerings of June and October 2005, respectively, in an
attempt to shed light on the evolving share ownership structure of China’s leading SOEs especially the
extent of capital injections from “foreign” (i.e. non-Mainland) entities.
Design/methodology/approach – The objectives of this paper are pursued, as noted above,
through detailed analysis of recent ownership change in two highly topical and major SOE bank cases.
Findings – The forms and mechanisms for recent “foreign” capital injection are outlined – in terms
of both the private equity and IPO capital injection routes – aswell as recent initiatives, in a number of
SOEs, to convert non-tradable PRC stock holdings into tradable holdings. Recent cases suggest that
foreign equity fusion is taking place at an unprecedented pace and scale, and is fostered by recent
innovations like “unlisted foreign shares”.
Research limitations/implications – Onlytime will tell whether the evolving ownership patterns
of China’s leading SOEs result in the kind of governance and performance benefits that are eagerly
anticipated. As this process of ownership is ongoing, and in some senses still in its early stages, much
research will be necessary in the future to confirm whether the expectations of foreign investors and
the SOEs themselves are likely to be met.
Practical implications – The case analysis of the evolving equity structure of SOE banks
presented here provides useful background for those wishing to evaluate the merits of other SOE
banks that are in the midst of IPO preparations, especially in light of the key vetting role played by the
introduction of new stake holders.
Originality/value – In sum, this paper provides key insights on how a unique equity model is being
transformed such that SOE stakeholders are rapidly, in many cases, seeking ways to share and
diversify ownership risk. This paper sheds light on the mechanisms for doing so by reverting to real
and highly topical examples with the SOE bank sector.
Keywords Privatization,Public ownership, China
Paper type Case study
1. Background and objectives
In recent years Hong Kong Exchanges & Clearing Ltd has served a central role in the
partial privatization of some of China’s leading State-Owned Enterprises (SOEs) by
listing so-called H-shares in such entities on its Main Board. Leading examples, during
the last three years alone, include China Telecom Corporation Ltd (November 2002),
PICC Property and Casualty Co. Ltd (November 2003), China Life Insurance Co. Ltd
The current issue and full text archive of this journal is available at
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The privatisation
process
37
Journal of Financial Regulation and
Compliance
Vol. 14 No. 1, 2006
pp. 37-46
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980610644743
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