China will raise the dividend payout ratio of many central State-owned enterprises starting this year by 5 percentage points to as much as 25 percent of profits, the Ministry of Finance said in a statement on Tuesday.

The policy covers 121 SOEs that are wholly controlled by the central government. They will be divided into five groups that will be subject to different requirements.

China National Tobacco Corp will be the only company paying the highest dividend rate of 25 percent,[Hong Kong company registration] while 14 other State-owned companies - including oil giant China National Petroleum Corp and major telecom operator China Mobile Co Ltd, as well as major power corporations - will pay 20 percent.

Another 104 companies will pay dividends of 10 or 15 percent. The two remaining companies - China National Cotton Reserves Corp and China Grain Reserves Corp - remain exempt from dividends at present.

Plans for the increase were laid out during the Third Plenum of the 18th Central Committee of the Communist Party of China in November.

The ministry's statement said the extra funds will be mainly used for projects and services to raise living standards.

According to the ministry, SOEs on the central government level reported aggregate profits of 432 billion yuan ($69 billion) in the first quarter of this year, up 5.1 percent year-on-year. But growth slowed by more than 10 percentage points compared with the first three months of 2013.

In the first quarter, SOEs that are involved in building materials, property development, vehicles, electronics and the power sector recorded fast growth in profits. Those in the chemical, coal and textile industries reported sharp declines. Transport, steel and nonferrous metals companies had further losses.

In 2007, the central government began to ask SOEs to turn in a certain amount of their profits, with a starting maximum of 10 percent. The ceiling was lifted several times thereafter. Ultimately, the government wants 30 percent by 2020, as stated during the Third Plenum.

The Ministry of Finance announcement was seen by experts as a step to improve income equality, [Set Up Company Hong Kong]but some expressed concern about the effectiveness of the policy.

Luo Zhongwei, a researcher at the Institute of Industrial Economics under the Chinese Academy of Social Sciences, said the change may not generate the levels of revenue that are expected.

"Executives of large SOEs may find ways to 'adjust' profits by reducing them or diverting them to their subsidiaries," he warned.

Ji Xiaonan, who heads the supervisory board of the State-owned Assets Supervision and Administration Commission, recently told the China Economic Weekly the average dividend payout rate at SOEs is less than 10 percent.

And Wu Xiaoling, vice-chairwoman of the financial and economic committee of the National People's Congress (the top legislature), has said that about 90 percent of the dividends are eventually returned to the SOEs.

Luo suggested a law that will guarantee that dividends are used "appropriately".

He said that dividends "cannot be used to compensate for shrinking land sale income or for other government expenditure, but only in a way that can benefit everyone, [Hong Kong Company Formation]such as to replenish the social security fund," he said.

At the same time, the new policy will not impair SOEs' competitiveness, Luo said. "It's just what other companies do ... pay dividends to your shareholders."

Jia Kang, director of the Research Institute for Fiscal Science at the Ministry of Finance, said the average international payout ratio for dividends at listed companies ranges from 30 to 40 percent of net profit.