The Mystery of China's Sinking Stocks
It is one of the greatest paradoxes of the Chinese economy that its stock market, called the A share market, has lost half of its value in the past five years, while the economy has grown by 50%. Many attribute the stock market decline to the "overhang" problem. Until recently, two-thirds of all the shares of companies listed on China's stock exchanges were "temporarily nontradable," but there had been repeated indications that these shares would be freed up sooner or later. Some argue that it is such a prospect that depresses the market because of the fear these hitherto nontradable shares will flood the market once freed up.
It is against this background that the regulators launched, around the middle of 2005, "share reforms" aimed at resolving the overhang problem by making nontradable shares tradable. This, undoubtedly, is the right decision, as the existence of a large amount of nontradable shares is an anomaly for any market. However, the belief that the so-called overhang was the chief culprit of the dismal performance of the stock market has led to measures to monetarily benefit tradable shareholders in the process of converting all shares into tradable shares and to suspend capital raising. The hope is that happier shareholders and a frozen supply of stocks will help prop up stock prices.
The real reason for the depressed A share market is more fundamental. A comparison of the stock prices of Chinese companies which are simultaneously listed on domestic and overseas stock exchanges gives some indication of the real story. On average, these dually listed companies are still traded at a 30% premium in Hong Kong, or the H share market, over the price of the same stock in the A share market. To be sure, the price gap between domestic and foreign exchanges of the dually listed companies has been narrowing, from about 380% five years ago to only about 30% today. But the A share market is hardly cheap; it remains overvalued compared with overseas markets.
China's economic growth is so driven by capacity expansion, or fixed-asset investments, that investments now account for more than 50% of the gross domestic product, more than any other country at any time in the history of economic development. The relentless capacity expansion has led to economy-wide overcapacity and overcompetition, to such an extent that the profit margins of the firms are constantly squeezed. Data show that the prices of Chinese exports to the U.S. have fallen by more than a quarter since 1997 whereas the price index for China's raw materials has risen by about 20%. If growth only translates into ever declining profitability for Chinese firms and decreasing return to their shareholders, is there any wonder why their stock prices also fall?
Therefore, the performance of the Chinese stock market, not surprisingly, merely reflects economic fundamentals of the listed companies. Concern over the so-called overhang is overblown. Moreover, there is no evidence, nor is there any economic logic, that the government plans to dump all, or a substantial amount, of the shares it holds onto the market.
But the notion of an overhang has given rise to the argument that nontradable shareholders should pay tradable shareholders before the shares of the former are allowed to trade. The stated justification for "making payments" is based on the fact that the offering prices for the shares issued to public shareholders when these companies first went public were higher than the investment costs of the founding shareholders who now hold non-tradable shares. This was deemed unfair and therefore the nontradable shareholders should now compensate tradable shareholders for such historical wrongs.
The regulators agreed and made it a rule that nontradable shareholders must pay tradable shareholders regardless if such tradable shareholders have just become a shareholder the day before they are required to register to receive such payments. There is no standard for how much payment is to be made or in what form; whatever payment terms must be approved by two-thirds of tradable shareholders before nontradable shares to receive the label of "tradable," although they are still required to be locked up for a period of time.
To date, some 300 listed companies, out of 1,370 or so, have announced plans by their nontradable shareholders to pay tradable shareholders. Of them, over 100 have completed making payments and become what is referred to as "G share" companies. The payment schemes typically consist of nontradable shareholders giving for free their own shares and cash to the other group of shareholders. On average, tradable shareholders receive about 30 free shares for every 100 shares they hold. Furthermore, some nontradable shareholders have also given warrants to entitle tradable shareholders to buy shares from them at specified prices. To assure tradable shareholders that there is value in these warrants, nontradable shareholders have also committed cash, in billions of yuan, to support the stock price should it fall below the exercise price of these warrants.
In any stock market, it is unthinkable for a group of shareholders, controlling or otherwise, to be forced to give up their property before being allowed to trade their shares. There is no basis, either in law or in practice, for one group of shareholders to be forced to give up their property rights to another group of shareholders.
Respect for property rights is a major pillar for any market. No market can function normally without it. Therefore the de facto expropriation of one group of shareholders' property rights by another, be they state or private owners, undermines the market.
Another major pillar of the market is the rule of law. The practice of shareholders making pledges to support their stock prices directly contravenes China's securities law against stock price manipulation. Regardless of the objective, such disregard for established laws and regulations cannot be conducive to the development and maturation of a stock market. Furthermore, gifting shares to tradable shareholders cannot boost the share price as hoped and it is likely to be counterproductive. This is because free shares reduce the average holding cost of shares, providing incentives for the shareholders to sell. In fact, a rational investor is likely to sell free shares to lock in profit. The selling induced by gifted free shares can only depress the share price.
To date, over 100 companies have completed the transition from "partial circulation" to "full circulation" of their shares, or have become the so-called G share companies. To obtain these rights, the non-tradable shareholders have given up their property in terms of shares, cash, warrants and other forms of economic interests to tradable shareholders. How have the G shares fared so far? And how has the stock market performed as a result of these changes?
Unfortunately, in both cases not very well. The stock prices of G shares have under-performed the market, and G share companies have lost about a quarter of their market value on average. Analysis conducted on the data of G share companies as of the end of October of 2005 show that the more free shares that the nontradable shareholders gave to tradable shareholders, the greater the fall in the prices of these shares, as one would expect. In fact, their share prices have fallen so much that the total holdings of the tradable shareholders, if they have not sold, are on average worth less today than before they received free shares. Both tradable and non-tradable shareholders in general have been left worse off as a result of the latter giving their properties away to the former.
Not only are G shares punished by the market, the Chinese stock market as a whole has also become more, as opposed to less, speculative. Capital is enticed to flow to the shares of those companies about to become G shares in anticipation of receiving free shares and cash. Once these gifts are delivered, the shares are dumped as investors lock in profits and move on to the next target. G shares are no longer attractive because there is no chance they will receive any more free shares and cash. And so the process continues to repeat itself. As long as free money continues to fall out of the sky, G shares are deserted regardless of their fundamentals. The consequence of all this is that G shares will be depressed before the entire market is converted into G shares. As the number of G shares increases, the market is expected to continue to trend down as well.
What has the reform achieved? It has not made nontradable shares tradable, at least not for the time being as they remain locked up for some years to come. Has the reform succeeded in reducing the state holdings of shares of public companies? Not at all. On the contrary, a number of large companies have seen the holdings of the state-owned controlling shareholder increase, because the parent companies have bought more shares to support the share prices than the shares they had given away earlier.
Therefore, the "overhang" is not reduced in the least. It has only become greater, except the market now knows that these shares will be allowed to float after the pledged lock-up period expires. If overhang will indeed depress the stock price, then the worst is yet to come, to a different group of tradable shareholders, no doubt. Meanwhile, the stock market is basically shut down for new issues, either by the listed companies trying to raise fresh capital or by nonlisted companies attempting to go public. The policy is motivated by the concern that more issuances may further dampen the market as it increases the supply of stocks. Because of the depressed state of the stock market, no G share companies have been allowed to issue new shares or otherwise raise capital through the market even after they have completed the reincarnation into G shares.
If banks and the stock market are regarded as the two major engines of economic growth for China, the stock market engine has sputtered and basically shut down, while bank lending has increased substantially in the past five years. Last year, bank lending increased by some $230 billion, but the capital raised from the A share market was an insignificant $7 billion. This year, capital raising activities in the domestic stock market have been entirely suspended.
An unintended consequence of closing down the stock market is to increase the risks for Chinese banks. Denied access to equity capital through public market, firms will have to rely more on bank loans. Equity is the cushion against insolvency risk for lenders. Insufficient equity increases the risk of bank loans turning bad. 2005 is a banner year for China's banking reform as several major state-owned banks have cleaned up their balance sheets, brought in foreign investors and gone public on Hong Kong Stock Exchange. For the reform to succeed, the underwriting criteria of Chinese banks will be further tightened. The dynamics of the odd combination of more disciplined bank lending policies and the lack of equity capital bode ill for public companies, for the stock market and for the economy for years to come.
Mr. Shan, an economist by training, is a private equity investor. This is an edited extract of his article in the December issue of The Far Eastern Economic Review (
www.feer.com).
中国股市下跌之谜
中国经济最令人困惑不已的问题之一就是其A股市场在过去五年中下跌了一半，而经济却增长了50%。许多人都将股市的下跌归因于一个遗留问题。直到不久前，中国上市公司的股票总量中仍有三分之二“暂时不可流通”，但一直有迹象显示，这些股票迟早会上市流通。一些人认为，正是由于担心这些非流通股上市交易后会冲击大盘，股票市场才一直萎靡不振。
正是在这种大背景下，监管部门在2005年年中推出了“股权分置改革”，旨在通过让非流通股上市流通来解决这个遗留问题。这无疑是正确的决定，因为大量非流通股的存在对任何市场而言都不是正常现象。既然这个所谓的遗留问题被当成了股市表现低迷的罪魁祸首，于是有了在股改过程中对流通股股东进行经济补偿和暂停新股上市的措施。采取这些措施的初衷是，股东满意了，新股发行的暂停了，股市便可受到提振。
但实际上，基本面因素才是导致A股市场萎靡不振的真正原因。对比一下在国内和海外同时上市的中国企业在中外市场的股价就能发现这一点。同在中国A股市场和香港上市中国企业的股票，其在香港的股价比在国内A股市场的股价目前平均仍要高出30%。固然，这些两地上市公司在国内和海外市场的股价价差正在缩小，差幅已经从五年前的大约380%减少到了目前的30%，但是A股市场的股价依然不便宜；同海外股市相比，其股价依然被高估。
推动中国经济增长的主要因素是产能的扩张，即固定资产投资的不断增加。目前固定资产投资相当于中国国内生产总值(GDP)的50%以上，如此高的比例任何国家在任何发展阶段都未曾出现过。产能的急剧扩张导致了整个经济领域的产能过剩和竞争加剧，以至企业利润率不断下滑。数据显示，自1997年以来，中国对美国出口产品的价格已经下跌了四分之一以上，而同期中国原材料的价格指数则上涨了大约20%。如果增长带来的只是中国企业利润率的下滑和股东回报率的下降的话，那么股价股市不断下跌又有什么值得大惊小怪的呢？
中国股票市场的表现只是反映了上市公司的经济基本面，因此，这也就毫不奇怪了。对所谓遗留问题的担忧被过度夸大了。而且，没有证据显示政府计划将把所持的全部或绝大部分股票都抛售到市场中，而且这种看法也不符合经济逻辑。
但对这个遗留问题可能危及股市的看法愈演愈烈，使人们认为非流通股股东应在其股票上市流通前先对流通股股东进行补偿。所谓“对价”的理由是基于以下事实：这些公司首次公开募股时向公众股东所发行股票的价格高于创建公司的非流通股股东的投资成本。这点被认为是不公平的，因此非流通股股东现在应该对这种历史错误向流通股股东进行补偿。
监管当局也认可这点，规定非流通股股东必须补偿流通股股东，即便流通股股东只是在对价股权登记日的前一天刚刚买进股票也要得到补偿。在应补偿多少或以何种形式进行补偿方面并没有统一的标准；补偿条款必须得到三分之二以上流通股股东的认可，非流通股才能获得“可流通”的名分，尽管这部分股票仍需要锁定一段时间。
迄今为止，在大约1,370家上市公司中，共有300家公司宣布了股改计划。其中，有100多家公司完成了对价，成为所谓的G股。补偿方案通常是由非流通股股东向其余股东送股或送现金。平均而言，流通股股东持有的每100股股票会获得约30股的股票。而且，部分非流通股股东还向流通股股东发放在特定价位买进股票的权证。为了向流通股股东保证权证的价值，非流通股股东还要承诺动用人民币数十亿元在股价跌破权证的执行价后支撑股票价格。
一部分股东（无论是否为控股股东）被迫放弃其财产，然后其股票才能获准上市交易，这种做法在任何股市中都是不可思议的。无论是在法律上，还是在实践中，一部分股东被迫将其产权转让给另一部分股东都是没有根据的。
尊重产权是所有市场的主要基石。没有这一点，市场就无法正常发挥其职能。因此，这种实质上是一部分股东对另一部分股东产权（无论是国家的还是私人的）的侵占，是对市场的破坏。
市场的另一个主要基石就是法律准则。股东承诺支撑股价的做法直接违反了中国证券法中关于股价操纵行为的条款。不管其目的如何，这种漠视现有法律法规的做法都不利于股票市场的发展和成熟。而且，向流通股股东的送股不能如预期那样提振股价，而很可能产生反作用。这是因为免费的送股降低了平均持股成本，给了股东抛售股票的动力。实际上，理性的投资者可能会卖出送股，以锁定利润。由送股引发的抛盘只会导致股价低迷。
迄今为止，有100多家公司完成了其股票从“部分流通”向“全流通”转变，即成为所谓的G股公司。为了获得这个权利，非流通股股东以股票、现金、权证等利益形式将部分产权补偿给了流通股股东。那么迄今为止G股的表现如何呢？股改后市场的表现如何呢？
不幸的是，G股和大盘的情况都不太好。G股比大盘更逊一筹。G股公司市值平均下降了四分之一。对G股公司截至2005年10月底的数据进行分析后发现，非流通股股东向流通股股东的送股越多，其股价的跌幅就越大。实际上，股价跌幅之大已经到了流通股股东的持股总价值（如果尚未卖出）平均比获得送股前还要低的地步。总体来说，非流通股股东将部分产权送给流通股股东，结果导致了双输的局面。
不但G股受到了市场的惩罚，整个中国股市也变得更具投机性。资金被吸引到了将成为G股的股票上（投资者希望获得送股或现金）。而一旦获得送股后，投资者就抛售该股，锁定利润，然后再寻找下一个目标。由于没有机会再获得送股或现金，G股就变得不再具有吸引力。这个过程不断重复著。只要还有现成的钱好挣，基本面再好的G股也不会有人去理睬。结果就是G股会在所有股票都变成G股前一直处于低迷之中。随著G股数量的增加，预计市场的趋势也将是不断走低。
改革得到了什么呢？非流通股没有流通，至少在被锁定的这些年内如此。股改成功地减少了上市公司的国家持股吗？根本没有。相反，许多大公司的国有控股股东持有的股份出现了增加，原因是母公司为了支撑股价而买进的股票数量要多于早先送出的数量。
因此，市场只是知道了这些股票在所谓锁定期期满后将会上市流通，除此而外，这个遗留问题所造成的压力丝毫没有减轻，反而加重了。如果遗留问题的确导致了股价走低，那么无疑，对不同的流通股股东而言，更严峻的局面还未到来。与此同时，股市已经基本停止了新股发行工作，无论是上市公司增发还是非上市公司的首次公开募股都陷入停顿。这一政策的根源在于担心大量发行股票会导致供应量的增加，从而进一步冲击市场。由于股市的低迷状况，即使在G股公司完成了股权分置改革，转变为G股后，也没有一家公司获准发行新股，或通过其他方式从市场上融资。
如果银行和股市被看作是中国经济增长的两个主要引擎，那么股市这个引擎已经支离破碎，基本停止了运转，而银行贷款在过去五年里却大幅增加。去年，银行贷款增加了2,300亿美元，但从A股市场上筹集的资金仅有区区70亿美元。今年，国内股市的融资活动更是完全停止了。
股市融资功能的丧失带来了一个意想不到的后果，那就是增加了中国银行业的风险。由于无法通过公开市场获得股权资本，企业就要更多地依赖银行贷款。股权是贷款人抵御偿债能力风险的主要工具。股权不足增加了银行贷款变为坏帐的风险。2005年可谓是中国的银行业改革元年，几家大型国有银行都清理了资产负债表，引入了海外投资者，并实现了在香港的上市。为了改革的成功，中国银行的承销标准将会进一步从严。更加严格的银行贷款政策以及股本金的缺乏在今后几年里对上市公司、股市和总体经济而言都不是好消息。
（编者按：本文作者单伟建是一位经济学家，同时是一位私有资本运营机构投资者。本文是他发表在12月份《远东经济评论》(The Far Eastern Economic Review)上的文章的节选。）
