By staff reporter Song Yanhua

(Caijing.com.cn) Major shareholders of listed state-owned firms have initiated the process of transferring company stakes to the National Council for Social Security Fund (SSF), a person familiar with the situation told Caijing.

The State Council, China's cabinet, said on June 19 that all state-owned companies that listed after China's reforms of state share holdings in 2005 and companies that will list in future must transfer shares worth 10 percent of their IPO to the state pension fund.

The SSF will hold the shares for at least three years beyond any existing lockup period.

State media reported that the new measures are aimed at fortifying China's social security system to deal with an aging population.

According to figures released by the National Council for Social Security Fund, 131 listed companies are due to transfer 8.394 billion state-owned shares.

These shares belong to 829 holders of state shares with a market value of around 64 billion yuan.

Central Huijin Investment Ltd., a state investment vehicle, is the largest holder of state shares and will transfer more than 2 billion shares in China's major banks to the pension fund.

Huang Kaijun, an analyst at Fortune Securities, said it is not surprising to have domestically-listed companies transfer their state shares as similar rules have been in force for overseas IPOs.

He said the government hopes the move will have a positive effect on the market following the resumption of IPOs after a nine-month suspension as the SSF's prolonged holding of the shares  could ease the pressure of massive stock selling.

However, an analyst who asked not to be named told Caijing that this extended lockup period could in fact have a negative impact on the market.

"After the lockup expires, the SSF will decide whether to sell the stakes," the analyst said.

As the pension fund has an interest in financial returns, as opposed to industry-focused investment, the release of shares on the market could be destabilizing, he said.

Wei Junxian, a partner at Dacheng Law Offices told Caijing that the move marks a major step toward distributing the state-owned assets efficiently.

However, Wei said that there could be technical problems as the transfer of shares to the pension fund may violate China's Company Law which lays out specific requirements regarding capital reduction.

1 yuan = 14 US cents

Full article in Chinese: http://www.caijing.com.cn/2009-06-24/110188685.html