China is drafting rules over the transfers of previously non-tradable equities in state-owned listed enterprises after a shareholding revamp in domestic stock markets, state media reported today.

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Big shareholders at a state-held public firm will be allowed to offload up to 50 percent of their stakes in the company within three years, the Shanghai Securities News said, citing unnamed sources.

Chinese stock regulators launched a program in May 2005 to require 1,400-odd mainland traded firms to unlock state-owned ownership into free-floating entities to improve market quality and beef up management.

More than 95 percent of domestically listed companies have wrapped up the stock conversions by the end of last year, granting large shareholders the right to dispose of their stakes pending lock-up periods.

Financial authorities are drafting three sets of rules to supervise the purchase and the sales of state equities by large shareholders at listed firms as well as equity transfers among state-owned enterprises, the China Securities Journal said.

The report, quoting Liu Jipeng, a professor at China University of Political Science and Law, said that the rules will stipulate vetting procedures, price-fixing methods and information disclosures for the transfers of state shares.

Chinese mainland stocks have more than tripled in values since the start of last year on sustained capital inflows from citizens' banks deposits. Some analysts see risks are mounting with the possibility of a widespread sell-off to pocket profit.

"Regulators should set up such a mechanism to protect minority investors and help steady the stock-market performance," said Zhu Luwei, a China Securities Co dealer.

"It will help improve the transparency of share transfers by large shareholders and curb possible insider trading and stock-price rigging."

(Shanghai Daily )