China s Shareholding System and Capital Market Experiment 1. The experiment with the shareholding system is good as a way to get people familiar with the value of shares fluctuating and to create some of the institutions of a modern capital market. Up until now, the primary contribution of the shareholding system has been to inject a little extra capital to individual firms, which is of some importance. The real value of the shareholding system would be its becoming the vehicle for changing the way the major enterprises were governed. You would give the power to the shareholders, which could be public pension funds that are socialist.
Shareholders don t all have to be private.
You ve got to give the power to those who are concerned with share value to pick the boards of directors who can in turn pick the management. But as long as management is picked by and shares the goals of the government and the Party, you are never going to really have independent enterprises. I think it was a good idea to have that experiment, especially in political terms. It laid the foundation for the increased practice of shareholding. It offered some comfort to the leadership that the shareholding system may not threaten the political power of the socialist state.