The State Council, China's cabinet, has finally unveiled long-awaited guidelines for overhauling the country's State sector, according to which State-owned enterprises (SOEs) will have to move toward a more diversified ownership structure. The firms will be required to sell stakes to non-State investors, and, when floating on the stock market, will have to go public in their entirety rather than having only certain units going public.

The guidelines could herald a breakthrough in the efforts to reform China's SOEs and therefore inject new vitality into the economy, but many wonder whether a faster pace of reform and more IPOs could potentially fuel further volatility in the mainland stock market, partly because issuing IPOs will have the effect of siphoning off funds from existing stocks.

The China Securities Regulatory Commission (CSRC) is expected to resume IPOs in the near future, according to some media reports. The CSRC suspended all new IPOs early in July to stabilize the stock market amid a slump that started in mid-June and that saw the benchmark Shanghai Composite Index plunge more than 30 percent in three weeks.

However, there's no need for stock market investors to be too concerned about the new SOE reform package. Even though the guidelines have been released, China's SOEs will have to await detailed rules from the State-owned Assets Supervision and Administration Commission (SASAC) and will need to come up with a concrete action plan before planning any new listings. It is clear that SOEs still need time to warm up to the new move of going public, during which time the stock market's vitality can be restored.

The downward trend in the stock market will eventually be reversed when investors regain confidence, and IPOs are likely to resume as soon as the current volatility subsides.

China is not facing a choice between stabilizing its stock market and revamping the State sector. Instead, the new round of reform is aimed at improving the competitiveness of SOEs - some of which are already listed on the Shanghai and Shenzhen bourses - and may actually boost stock market sentiment.

The country's State sector is still held back by a lack of efficiency, even though there has been notable progress in some areas over the past two years. The new SOE reform package, which includes enhancing management of State assets and improving SOE modernization, will help to address the fundamental problems and attract more investors' attention toward listed blue chip SOEs.

Monday will be the first day of trading after the new SOE reform package was announced over the weekend. Some analysts forecast stocks related to SOE reform may be boosted, but it is hard to be certain.

SASAC said on its official Weibo on September 7 that the guidelines had gained government approval, but the news was not warmly greeted by stocks related to SOE reform. This may be repeated on Monday, but if so it will probably just be an indication of the struggle to overcome the recent period of volatility, rather than evidence of market concerns about the new SOE reform package.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn