The measures, which aim to provide a healthy direct financing channel, as
well as the opportunity for investors to enjoy the fruits of the rapidly growing
economy through new listings and offerings, have been widely welcomed.
More than 30 domestic listed companies are ready to raise additional capital
most likely before the end of the month. Overseas-listed companies such as Air
China are also keen to return to the domestic bourse.
This renewed activity has raised fears among some that fresh capital-raising
could pressure the market.
"I believe the index will fluctuate due to the resumption of capital-raising,
but on the other side, more and more capital is flowing into the market," says
Cheng Weiqing, analyst with CITIC Securities. "The extra capital will alleviate
the pressure."
The other source of funds is capital from institutional investors.
At a macro level, the high liquidity in the money market, as well as rising
personal and corporate deposits, provide more channels for money to flow into
the capital market.
Large inflows from insurance funds are also expected. Until now, no more than
2 per cent of total insurance funds have entered the capital market, leaving a
three percentage point space to expand to the 5 per cent limit set by the
regulator.
There are also QFIIs, or qualified foreign institutional investors, which
have shown great enthusiasm in the A share market. In acknowledgement, the State
Administration of Foreign Exchange last week approved three more QFIIs to invest
in yuan-denominated shares and bonds.
Up to April 14, China has approved 39 overseas institutions to invest a total
of US$6.32 billion in yuan-denominated stocks and bonds.
Almost a year ago, China suspended share sales to prevent a flood of equity
and started to convert about US$210 billion non-tradable State-owned shares of
listed companies into stock that can be bought and sold on the market.
Since then, 768 companies accounting for 60 per cent of all listed firms and
with a total market value of 1,280 billion yuan (US$160 billion) had completed
the conversion of non-tradable shares by the end of March, paving the way to
further improve corporate governance and operate in line with global standards.
The enactment of the securities law in January 2006 provides a foundation for
listed companies to improve their corporate governance.
A series of rules and regulations by regulators and bourses have been
announced, or will be soon, under the framework of the new law.
Among them are:
Allowing foreign investors to buy strategic stakes in listed companies'
tradable shares, which could boost mergers and acquisitions, and in turn, drive
listed companies to better management and performance.
The bourses, rather than the government, will decide whether companies
qualify for listing, or whether to stop or suspend trading in their shares.
Public companies offering large loan guarantees for other firms will have to
get the approval of at least half of the shareholders, which would curb
financial risks for public companies.
For 15 years, the stock market has been seen as a source of funds for
State-owned companies, including many struggling ones, and a way to release the
banks from their onerous role as providers of cheap funds to government
corporations.
Now, when all the shares are converted to tradable ones, survival of the
fittest will ensure that companies improve their performance and deliver
shareholder value as in any well-functioning market.
(China Daily 04/24/2006 page1)