China's securities regulator said on Friday it would launch a pilot scheme that allows mainland-incorporated companies listed in Hong Kong to convert their non-tradable equity into free-floating shares. The China Securities Regulatory Commission (CSRC) told a press conference in Beijing that so-called H-share companies can apply to participate in the pilot scheme, and the regulators will initially select up to three qualified companies.

Under current rules, shares held by founders or major shareholders of Hong Kong-listed mainland firms are not eligible for trading on exchanges. The reform was first reported by China's Caixin news outlet in November. Although the scheme would potentially increase share supply in the market, which could hurt valuations, analysts say that allowing founders or major shareholders to float their shares could help improve corporate governance.

CSRC said on Friday that participants in the scheme can choose the proportion of shares they would like to float. China Construction Bank, which debuted in Hong Kong in 2005, is the only Chinese firm whose shares are fully convertible.

Copyright Reuters, 2017