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Tuesday, February 15, 2000, updated at 09:57(GMT+8)
Business Stocks Sky High at 1st Dragon Year session

China's two stock markets skyrocketed by more than 9 percent Monday, the first session following a two-week Spring Festival vacation, on the publication of a series of official promotional news.

The Shanghai stock index surged 140 points, or 9.05 per cent, to end at 1673.74. Turnover exceeded 23 billion yuan (US$2.8 billion). The Shenzhen stock index soared 370 points, or 9.36 per cent, to close at 4322.37 points on a heavy transfer of 20 billion yuan (US$2.8 billion).

Analysts believe that two pieces of news released by the stock watchdog, the China Securities Regulatory Commission, as the driving force behind the huge rush. One is Chinese brokerages will be allowed to use stocks as bank loan collateral, the other is the individual investors are given more choice in buying shares.

The usually cash-strapped Chinese brokerages have been given the green light to use stocks as collateral for bank loans, official media reported Monday.

The People's Bank of China and the China Securities Regulatory Commission unveiled rules on using stocks as backing for loans in an ongoing drive to open new funding channels for domestic securities firms.

The new measures are a bid to offset the impact of the country's Securities Law, which came into effect in July last year, and barred brokerages with a registered capital of under 300 million yuan (36 million dollars) from the lucrative underwriting and own-book fund management business that had been their bread and butter.

Under the new rules, brokerages will be able to use A-share stocks and stocks in mutual funds listed on China's domestic stock markets as collateral for bank loans.

A-share stocks are denominated in local currency and only traded by mainland Chinese residents.

The rules state that brokerages can only use stocks as collateral for loans of up to six months and the amount of the loan must not exceed 60 percent of the market value of the stocks.

Brokerages are barred from using stocks of loss-making firms or companies whose stock prices have been especially volatile for the previous six months as collateral.(China Daily)

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