Hangover cure.

The article looks at economic policy in China as of May 7, 2005. The Chinese authorities have chosen the spring holiday, with the stockmarkets closed this past week, to confront a mountain of paper that has long bothered them: the country's state-owned shares. Also known as non-tradable or "legal person" shares and held by provinces, cities or the central government, these account for two-thirds of the $400 billion market value of the companies listed on the Shanghai and Shenzhen stock exchanges. At long last, on May 1st the China Securities Regulatory Commission (CSRC), the main stockmarket regulator, issued guidelines to deal with the overhang. As part of a trial program, the state will start to sell shares in a small number of listed companies. In order to avoid depressing prices further, the CSRC and two-thirds of the public, minority shareholders will in each instance have to approve the conversion of non-tradable into normal shares. Another issue is whether existing shareholders will be granted pre-emption rights to buy what the state is selling, perhaps even at a discount. Overseas fund managers, who have recently started to invest more in Chinese domestic shares under the government's Qualified Foreign Institutional Investor scheme, have long argued for this, in order to minimise the dilution they will otherwise suffer.