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Rigid Yuan Regime Main Bar to A&B Share Merger
China's rigid currency regime is the main barrier to merging the A and B share markets, and this cannot be fully resolved until the yuan is freely convertible, says the chairman of the Securities Regulatory Commission.
Zhou Xiaochuan told a convention on Saturday the yuan's lack of full convertibility was the main problem behind any plan to merge the yuan-denominated A shares with hard currency B shares, the Shanghai-based Wenhui Daily reported Sunday, December 3.
"Zhou said the essence of the problem is that the yuan is not convertible on the capital account. To fully resolve this problem, one must wait until the yuan is fully convertible," the Wenhui Daily reported.
Regulators are considering eventually merging the small and illiquid B share market with the much bigger A share market, but have given no clear timeframe.
A shares are now reserved for domestic investors and B shares for foreign investors, though Chinese punters actually dominate the B share markets by trading through regulatory loopholes.
The central bank keeps the yuan trading within a very narrow band of 8.2770 to 8.2800 to the US dollar, and the currency is only flexible on the current account.
Zhou also said Beijing would explore other options, the Liberation Daily reported, but did not elaborate.
Stock Markets' Shares Expected to Be Merged
China's A-share market, which is only open to domestic investors, and the B-share market, reserved for overseas investors, are expected to merge in the near future.
Liang Dingbang, chief advisor to the China Securities Regulatory Commission, said in Shanghai recently that China is considering allowing overseas investors into the A-share market as part of an endeavor to boost the securities market.
"If overseas investors are permitted to invest in A shares, listed companies may consider re-purchasing B shares, and the A- share and B-share markets will then be united naturally," Liang said. The merger of the two shares is not through government decrees, he noted.
Chinese enterprises have issued 108 B shares on the two stock markets in Shanghai and Shenzhen, raising more than US$5 billion.
However, due to such reasons as the irrational structure of the shares, the B-share market has long been sluggish.
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