Beef up B-share market for our foreign currency
By Yin Zhongli (China Daily)Updated: 2007-05-22 06:58
The average price of stocks on the B-share market is about half the average price of A shares. Theoretically, B-shares could double in value once the B-share market is subject to the same policies as the A-share market.
When the B-share market is geared up, individuals and businesses will be more willing to invest their foreign currency rather than convert it into renminbi. This would ease pressure to revalue the renminbi.
At the same time, if domestic companies could get the foreign currency they need from listing in the B-share market, they would stop bringing in foreign currency pooled from overseas stock markets, further reducing the pressure for renminbi revaluation.
However, several arrangements must be made before revitalizing the B-share market.
Currently, individual mainland investors are the majority investors in the B-share market.
Before the B-share market was opened to domestic individual investors in February 2001, it was mainly composed of foreign investors. By the end of 2002, domestic investors held 82 percent of all B shares while foreign institutional investors accounted for 1.5 percent.
Mainland institutional investors are still not allowed in the B-share secondary market. This has made the B-share market a rare case in capital markets where individual investors dominate.
The ban on domestic institutional investors was imposed out of concern that the foreign currency pooled from the B-share market would flow into the pockets of institutional investors instead of the businesses in need of the assets. This concern was a result of the foreign currency shortage, which has long since vanished.
The time is now mature for lifting the ban and letting institutional investors into the secondary market of B-shares.
The authorities could allow institutional investors to establish funds invested in B shares. The funds invested in A shares now total more than 150 billion yuan ($19.5 billion), while there is not a single B-share fund. It will inject vigor into the market and ease the tension in the currency market by providing an outlet for major investment with money collected from individuals.
While granting institutional investors access to the
B-share market, the authorities should also try to boost the B-share market
itself to balance supply and demand.
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