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New int'l board planned for Shanghai

By Qiu Chen (Global Times)

08:18, June 04, 2012

China is preparing a pilot program that will allow overseas companies to issue yuan-denominated shares in China's A-share market in a bid to accelerate the opening up of the country's financial market, according to directives released on the official website of the Chinese government Friday.

The directives, drawn up by eight government bodies including the National Development and Reform Commission, the People's Bank of China, and the Ministry of Finance, and approved by the State Council, declare that the government is studying allowing foreign institutions to issue stocks, bonds and funds in China, and is working on rules and regulations to facilitate the launch of an international board on which stocks of overseas companies can be traded.

China was expected to establish an international board in Shanghai's stock market last year, however, the launch was delayed mainly due to technical problems such as the country's accounting and auditing rules, which diverge from international standards, Zhou Yu, director of the Research Center of International Finance at the Shanghai Academy of Social Sciences, told the Global Times.

"But after two years of preparation, China's financial market is ready for the new board," Zhou said.

The launch of the international board has returned to the government's agenda recently because it will speed up the internationalization of the yuan, according to Dong Dengxin, director of the Financial Securities Institute at Wuhan University of Science and Technology.

An international board in China will help the yuan become more freely convertible in its capital account transactions, a crucial step towards the worldwide use of the currency, Dong explained.

"As listed overseas companies would have requirements to convert and repatriate their raised yuan funds, it gives China the chance to practice gradually enlarging the currency's exchange scope," Dong said.

Under government control, an international board is not expected to cause a slump in China's main exchanges in the short run, as many market watchers predict, said Zhou.

"The government will control the number of foreign companies that are allowed to list in China in the early stages of the new board. With a limited market scale, it is unlikely that the board will divert capital from listed domestic companies in the country's A-share market," Zhou said.

In the long run, the new board will exert a positive influence on the nation's stock market, according to Dong.

"The competition with well-developed international companies will push domestic enterprises to improve their performances. It will also help to regulate and curb speculation," said Dong.

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