The new rules were jointly issued by the State-owned Asset Supervision and Administration Commission (Sasac) and Ministry of Finance and made public as officials prepare for the National People's Congress and China People's Political Consultative Conference in March.

They have been released at a time when the issue of cheap sales of state assets to foreigners is likely to get special attention in Beijing.

The policy agenda for the two meetings in March is particularly important this year as the Chinese political cycle culminates in October in the 17th party congress, a five-yearly event at which the country's current and future paramount leaders are anointed.

'This is an offensive tactic from these ministries aimed at pre-empting concerns that state assets are being sold too quickly and too cheaply,' said Erwin Sanft, the head of China research at BNP Paribas.

'Merger and acquisition activity has really been heating up and there have been a long series of recent deals that definitely don't meet the new criteria.'

The new rules include a provision requiring all investments in state-owned enterprises to 'provide clear benefits in terms of enterprises' technological development and industrial upgrading'.

Pricing of state assets must be done by a government regulatory body, the price cannot include compensation for laid-off employees or pensions and the final sale price cannot be less than 90 per cent of the government evaluation.

Private transactions involving state assets must be approved individually by Sasac while foreign buyers of state assets, including investors from Hong Kong, Macau and Taiwan, are required to bid publicly through the country's equity exchanges.

Sasac has previously required state assets to be sold through public bidding but this is the first time equity exchanges, which are in most key cities in China, have been designated as the official venue for the transactions.

The move is expected to provide a huge boost for the exchanges, which have been lobbying the central government for years to be allowed to transform themselves into formal over-the-counter equity markets.

The China Securities Regulatory Commission has made the development of over-the-counter markets one of its principal policy objectives this year.

China's state-owned sector still dominates the national economy but has been shrinking rapidly in recent years since the government implemented a policy of 'grasping the large and releasing the small'.

Last month, Sasac designated seven 'strategic' industries - military equipment, power generation and grids, oil, telecommunications, coal, civil aviation and shipping - in which the state must retain absolute control.

The state sector as a whole saw revenues of 13.7 trillion yuan last year, an increase of 19.5 per cent from 2005, finance ministry figures showed.