A: The split share structure refers to the existence of a large volume of non-tradable state-owned and legal person shares. This means only about one-third of the shares in domestically listed firms float on the stock markets.

Q: Why the structure should be reformed?

A: The structure puts public investors in an inferior position relative to the actual controllers in making corporate policies and disposing of the firms' profits and assets. The idea of settling the problem of split-share structure has, as early as on 2nd February 2004, been touched upon in the Several Opinions of the State Council on Promoting the Reform, Liberalization and Stable Development of the Capital Market (commonly known as the "Nine Provisions of the State Council"). The Nine Provisions of the State Council clearly suggest that "the issue of split-share structure must be settled in a positive and reliable manner. In solving the problem, we should respect the rule of the market and exercise diligence in protecting the lawful rights and interests of investors, especially public investors."

Q: What stage of the reform is going on now?

A: The reform is in its mature stage. On August 24, five State departments announced guidelines pushing the reform process ahead since the pilot projects on share mergers had proved successful and were well received by the markets. According to the guidelines, more than 1,400 listed companies can "gradually'' convert their non-tradable shares. From May this year, a total of 46 listed firms in two groups took part in the trial reform of split share structure, and only the reform program proposed by one of the firms was vetoed by public stock holders at a plenary session of the shareholders of the company as they were not satisfied with the compensation offer. According to Shang Fulin's speech in May, the first phase of the reform is the ongoing trial program. Through the pilot projects in a few companies, China will explore methods on how to form the stock prices by the market while maintaining the stability of the market. In the second stage, with continuous feedback from the trial program, China will issue a series of related rules and regulations to create a favorable conditions for further reform, said Shang. The rules are aimed to protect the legitimate interests of investors and enhance the adaptability of the market for reform. In the third stage, with experience from the first batch of companies, China will expand the pilot projects.

Q: What is in the reform?

A: The reform concerns the essential management transformation of state-owned assets in China. CSRC statistics showed that a total of 1,377 domestic companies were listed on China's A-share and B-share stock markets, most of them are state-owned ones. According to the reform proposal, the companies or major shareholders should compensate about three shares per 10 shares totradable shareholders so as to make all their shares tradable. However, investors in China's B-share and H-share markets will not take part in the A-share market reform and therefore will notget compensation.

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