China regulator opts to close B-share markets
By James Kynge in Beijing and Richard McGregor in Shanghai
Published: March 22 2004 4:00 | Last Updated: March 22 2004 4:00
China has decided its foreign-currency B-share markets, launched in 1991 to attract funding for industrial development, should be closed at some unspecified date, officials said.
The China Securities Regulatory Commission (CSRC), the market regulator, is studying a range of options on how to close the B-share markets in a way that will protect the interests of listed companies and investors, said one CSRC official.
"We have not yet decided when the market will be closed down. It is quite complicated," added the official.
"We need to ensure it is done in a way that does not cause excessive speculation or loss of confidence. Merging B-shares with another market is a possibility, but it is only one possibility."
The role of the B-share markets in Shanghai and the southern city of Shenzhen has been superseded by the introduction of a scheme under which selected foreign institutions can buy domestic renminbi-denominated A-shares. That scheme, introduced last year, has proved quite popular with foreign investors and is expected to be expanded gradually in coming years.
At the same time foreigners have largely shunned the B-share market since the 1997 Asian financial crisis because of the poor quality of the listed companies and thin liquidity.
Instead, they have preferred to "buy China" by purchasing overseas-listed companies, especially in Hong Kong, where the quality of the Chinese enterprises is usually better than on mainland bourses.
China tried to revive the B-share market in 2001 by opening it to individual Chinese investors but since an initial surge in prices and turnover the market has struggled.
The shares of nearly all companies on the B-share market which have dual domestic listings trade at a large discount to their A-share prices.
In Shanghai the average discount is 46 per cent and in Shenzhen, 39 per cent - further evidence of investors' lack of interest in buying B-shares. More than 80 companies have dual listings. Separately, the CSRC has approved new measures to spur the five-month long revival in A-share prices, with a plan announced on Friday to allow banks to lend to securities companies for investment.
The announcement surprised some analysts, who said the poor management record of the state-owned securities companies did not warrant such support, even if such funds were lent according to strict guidelines. "If you give money back to the brokers, then you are diluting all the good work that has been done recently [to regulate the market]," said Fraser Howie, the author of two books on Chinese stocks. Regulators have recently launched an aggressive effort to clean up the many indebted brokerages.
Citic Securities will issue $121m (ˆ99m, £66m) in bonds next week under an initiative by the CSRC that will allow brokerages to pay down debts and increase their working capital.
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