Turning More SOEs to Blue-Chips

More large State-owned enterprises, including banks and insurance firms, are expected to be listed on the domestic stock market this year, a top securities regulator said recently.

"Listing of better-performing big enterprises would form a batch of blue-chip stocks in the domestic market,'' said Zhou Xiaochuan, chairman of China Securities Regulatory Commission (CSRC).

There have been doubts as to whether the decade-old stock market really has blue-chips.

The IPO (initial public offering) quota system and stringent control over some industrial sectors such as finance have blocked many large enterprises as well as banks and insurance firms out of the market, experts said.

Presently, speculation is still strong on the bourses and performance and profitability of some listed firms are rather poor, said Wei Jie, a professor with Tsinghua University.

Zhou admitted that the present structures of both listed firms and investors are far from satisfactory.

"We need more good stocks and qualified institutional investors to upgrade market structure and fuel up investor confidence,'' Zhou said.

Most listed domestic firms are from traditional industries and have limited scale, partly due to the IPO quota and lingering corporate restructuring of State firms.

But the situation is expected to change this year as authorities completely scrap the IPO quota and allow more financial institutions to seek public listing, Zhou said.

The listings of Minsheng Bank and market giant Baosteel in December have already kicked off a good start.

Minsheng collected 4.2 billion yuan (US$507 million) and Baosteel landed 8 billion yuan (US$966 million) in A share IPO proceeds.

"Their success indicated that the stock market is strong enough to shoulder such big IPOs,'' Zhou said.

The chairman said he would like to see more bank IPOs this year and of insurance firms too.

It was said that a group of banks including China Merchants Bank and Huaxia Bank have already filed applications and insurers like Pacific Insurance Company of China are stepping up preparations.

To pave the way for reforms, regulators have pledged to strike harder on inside trading and price manipulation to rebuild market order and curb speculation.

"Investors are apt to turn cautious against quick market expansion when big IPOs emerge,'' said an analyst with China Securities.

And listing of financial firms would require more transparent information disclosure to reveal their financial status.

CSRC recently required listed firms and applications to improve information disclosure and has designed a special package for financial firms.

"Investor confidence is the foundation for smooth implementation of reforms,'' Zhou said.

More participation of institutional investors would also help rationalize market sentiment, he said.

Zhou has pledged to take "unconventional and bold'' measures to boost the development of institutional investors.

The expected debut of open-ended funds is one example.

Open-ended funds, ensuring investors could more freely withdraw investment, require a more transparent operation by the fund managers and better management.

The first batch of such funds are expected to debut soon, according to Zhou.

And more would be launched if the experiment proved successful.

The government is also considering to further lift the ratio of stock investment of insurance firms.

And trial investment in mutual funds by the mammoth pension system would also be launched, Zhou said.

Meanwhile, authorities are pacing up preparations for a number of joint venture securities and fund management firms that would be launched after China's expected entry to the World Trade Organization this year.

However, most of the investors are still focused on retail.

There are just 100 securities houses, 10 fund management firms and 33 close-ended funds in China.

The stock market has staged a bullish rally since early last year and the number of stock traders has accumulated to 58 million.

By the end of 2000, 1,211 domestic firms had listed both within and outside the country, including 145 new IPOs last year, according to CSRC statistics.

Market capitalization in Shanghai and Shenzhen amounted to 4.8 trillion yuan (US$579 billion), up 81.7 per cent from 1999. (China Daily)

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