Both experts and investors said they were disappointed with such a plan, which was published by the market watchdog China Securities Regulatory Commission (CSRC) last weekend.

Although CSRC claimed that the plan is not final, it battered investor confidence by introducing ideas such as pricing the state shares through public bidding and floating all the shares in newly listed firms.

"The plan's fatal problem is that it is based on the premise that the market is operating stably," said Wang Yuanhong, a State Information Center researcher. "But we don't have such a stable market now."

China's stock market has been sliding since last June, and the market dove further this month with both the Shanghai and Shenzhen benchmark indices hitting lows not seen in two years. Some market analysts even said the market was "on the verge of collapsing."

"Whenever news on state shares reduction is announced, it is presented as bad news for the market," said Dong Chen, a China Securities Co analyst. "No matter how the reduction is carried out, it means big market expansion. But we don't have enough funds to come in to support the expansion. The plan fails to find a way to introduce new capital."

The plan also confirms the biggest market worry: that all the shares of newly listed companies will be tradable, which will result in relatively low prices for new issues and drag down prices of old issues.

Moreover, Dong said, the plan is not detailed enough.

Although CSRC promised to compensate former shareholders, the plan does not specify how much to give or how to do it.

Still, the plan does send some encouraging signals.

For example, downloading will be conducted gradually. And only five firms listed 12 years ago will be involved in an experiment this year. The five firms have 822 million shares held by the government.

The plan also encourages reinvestment of funds pooled from selling state shares into the stock market and establishment of specialized funds to buy state shares.

Experts said they hope that the sharp decline in the domestic stock market will force the relevant authorities to revise the plan.

"It is almost impossible to find a solution to satisfy both the government and investors," Wang said. "We should work to stabilize the market."

All in all, the plan is meeting strong opposition from investors.

"I'm depressed," one investor said. "I hope the final decision can be made soon so that we know where the bottom of the market is."

(China Daily January 29, 2002)