On June 19, 2009, China’s Ministry of Finance (MOF), the State-Owned Assets Supervision and Administration Commission (SASAC), the China Securities Regulatory Commission (CSRS) and the National Social Security Fund (NSSF) jointly issued the Implementation Measures on Transferring Certain State-Owned Shares in the Domestic Stock Market to the National Social Security Fund. The Measures aim to help stabilize China’s domestic stock market and enrich the social security fund.  

The issuance of the Measures demonstrates the Chinese government’s attention to sensitive locked-up state-owned shares, and to the public’s concerns about their under-funded social security system. Transferring a percentage of state-owned shares to the NSSF should allay investors’ fears over the adverse effects of a potential influx of locked-up state-owned shares, which may saturate the domestic market when their lock-up periods expire in the near future, and a flood of initial public offerings and listings (IPOs) after years of inactivity. At the same time, the transfer will inject necessary funds into the NSSF, which is facing a rapidly aging population.  

The Measures stipulate that all companies limited by shares in which the state has an interest and which has made an IPO in the domestic stock market since the completion of the full share circulation reform and the formation of the new share issuance mechanism, should, unless otherwise prescribed by the State Council, transfer to NSSF an amount of state-owned shares equal to 10 percent of the total issued shares in the company’s IPO. If the amount of the stateowned shares in a certain listed company is not sufficient to meet the 10 percent requirement, the Measures provide that the company should transfer all of its state-owned shares to NSSF. In certain circumstances, this transfer obligation can also be fulfilled by transferring a certain amount of cash instead of the state-owned shares.  

The Measures outline specific procedures for the transfer of state-owned shares. Generally speaking, after SASAC determines the number of state-owned shares that should be transferred to NSSF, the China Securities Depository and Clearing Corporation Limited should transfer these shares from the previous shareholders’ accounts to the NSSF account. At this point, the previous shareholders should submit relevant materials to SASAC for its records and make a copy for MOF and NSSF.  

The Measures further clarify how the NSSF should manage and dispose of the state-owned shares that it receives. For example, if the shares that the NSSF receives are the subject of a lock-up period, the NSSF will inherit this obligation. For certain state-owned shares, the NSSF will also extend the lock-up period for an additional three years. NSSF is entitled to enjoy any gains that derive from the shares and dispose of the shares as it sees fit, but it is not allowed to intervene with the listed companies’ business operations. MOF will supervise the NSSF’s dayto- day management of the transferred state-owned shares, and may even delegate certain agencies to periodically audit the NSSF.  

The Measures reflect the government’s efforts to further stabilize the stock market by boosting investor confidence and to prepare for a rapidly aging society by bolstering the social security system.