Shareholding System Reform in China
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Shareholding System Reform in China

Privatizing by Groping for Stones

Shu-Yun Ma

Since the 1980s, there has been a global wave of transfer of state assets to private hands. China is a relatively late participant of this worldwide trend, yet, in the last decade it has emerged as one of the largest privatizing countries. Shu-Yun Ma argues that China’s privatization is not based on any grand blueprint; rather, it is privatization by ‘groping for stones to cross the river’, a well-known metaphor often attributed to Deng Xiaoping, meaning that the reform simply proceeds on a trial-and-error basis without being guided by any theory.
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Chapter 6: China’s Privatization through Listing State Enterprises in Hong Kong

Shu-Yun Ma


H-SHARE COMPANIES AND RED CHIPS IN HONG KONG When China launched its economic reform in the late 1970s, foreign capital shortage was a major constraint to the country’s development.1 To cope with the problem, a number of channels have been opened to absorb foreign capital, namely foreign loans, direct foreign investment, and other means. Initially, most foreign capital was obtained in the form of foreign loans. From 1979 to 1991, China utilized US$52.7 billion foreign loans, representing 66 per cent of the total amount of foreign capital utilized during this period. Since 1992, direct foreign investment has emerged to be the largest source of foreign capital. From 1992 to 2000, China absorbed $320 billion direct foreign investment, accounting for 73 per cent of all the foreign capital utilized during this period. Other means include processing and assembly, compensation trade, international lease, and portfolio equity flows (PEFs). Their share in total foreign capital utilized has been negligible most of the time, with the exceptions of 11 per cent in 1997 and 15 per cent in 2000 (CSY, 2001, p. 602). What happened in 1997 and 2000 was a dramatic increase in the issue of foreign shares. Officially, there are two major types of Chinese foreign shares, B-shares and H-shares. They are both Chinese shares traded in a foreign currency (US dollar or Hong Kong dollar), with the difference that B-shares are listed on the Shanghai and Shenzhen Stock Exchanges, and H-shares on the Hong Kong Stock Exchange (SEHK).2 Before...

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