Privatization and non-tradable stock reform in China: The case of Valin Steel Tube & Wire Co., Ltd.

While China had been vigorously pursuing economic reform since the late 1980s, it wasn't until the 2005-2006 time period that non-tradable stock reform took place. The case of Hunan Valin Steel provides a rich look inside about the dynamics of the non-tradable share reform in China, and demonstrates the impact of good financial design helping the company to turn aside the financial distress, while minimizing costs to benefit the stockholders. Moreover, this case provides an illustration of the challenges posed by agency problems in China, with conflicted interests between tradable shareholders (public investors) on one hand and non-tradable shareholders (governments and state-owned enterprises) on the other. Not only does the split share structure result in conflicted interests and asymmetric information between managers and owners, but it also made it difficult to establish effective corporate governance.