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Special> China International Fair For Investment & Trade> Beijing Review Exclusive> Trade
UPDATED: August 3, 2009 NO. 31 AUGUST 6, 2009
Renewed Financial Frenzy
Recovered confidence jumpstarts the Chinese stock markets

A systematic reform will accompany the IPO reopening this time where the market will play a larger role in deciding IPO prices. Small and medium-sized investors will also be able to participate actively in the IPO, Lu said.

Process of revitalization

Leading up to the reopening, the CSRC took various restrictive measures in order to prevent IPO speculation. Despite these precautions, new shares were still hot commodities in the market. Guilin Sanjin Pharmaceutical Co. Ltd. and Zhejiang Wanma Cable Co. Ltd., the first two companies listed in domestic stock markets after IPOs resumed, saw share prices rise 81.87 percent and 125.48 percent, respectively, on the first day of trading. Both were temporarily suspended due to the price surge.

The relatively loose monetary policy, which will not change for the time being, as well as people's confidence on the economic outlook of China has underpinned the expansion of the capital market, Lu said.

Two major contributors—more bank savings of the citizens and low government debt—helped the capital market revitalization, Lu pointed out. An abundance of savings deposits enables banks to increase lending, while lowering government debt allows the government to implement pro-active fiscal policies and influence economic performance through tax readjustment and expenditure expansions.

The abundant liquidity has given rise to a surge in the capital markets, said Xu Xiaonian, economics and finance professor at China Europe International Business School, in an interview with China's Central Television.

According to statistics from the central bank, in the first half of this year commercial banks lent out 7.5 trillion yuan ($1.1 trillion), with a considerable part of the capital flowing into the stock markets, Xu said.

Aside from the loan expansion earlier this year, a total of 38 new mutual funds have completed fund raising, with 26 of them raising up to 67.5 billion yuan ($9.9 billion) for the stock markets.

Foreign investment

The Ministry of Commerce (MOFCOM), according to a July 2 statement by Vice Minister of Commerce Chen Jian, is examining and modifying relevant policies to encourage well-performed foreign-invested companies to launch IPOs in the mainland stock markets.

With many foreign-invested companies feeling encouraged by the MOFCOM statement, the Chinese stock markets are expected to hold foreign company IPOs in the near future.

Currently, there are nearly 400,000 foreign-invested companies on China's mainland, many of which are beleaguered by the credit crunch. If they are allowed to raise money in the mainland's capital market, their financial burden will be greatly relieved.

In the past, foreign-holding and foreign-owned companies were kept away from being directly listed in the mainland stock markets. But domestic companies with foreign investment of less than 30 percent (which is not a controlling stake) were allowed to be listed.

In November 2001, the CSRC and other government departments jointly issued the Circular on Some Opinions Relevant to Foreign Investment in Listed Companies, which considered allowing companies with foreign investment to be listed in the mainland stock markets. The circular also provided details about the IPOs of foreign-invested companies. The CSRC did not subsequently follow up with relevant rules and regulations, which had a negative impact on the pace of foreign companies' IPOs on the Chinese mainland.

In April 2008, MOFCOM issued a notice guiding foreign investment, clearly stating that qualified foreign-invested companies were encouraged to list in the domestic stock markets. The notice has greatly boosted foreign-invested companies' interest in acquiring IPOs in the mainland. Chen Jian said there are virtually no blocks preventing foreign-invested companies from being listed.

IPO: On Again, Off Again

China opened Shanghai and Shenzhen stock markets in 1990 and 1992, respectively. Since then, initial public offerings (IPOs) have been suspended and resumed six times.

- On July 21, 1994, China halted IPOs for five months and restarted on December 8.

During the five months, benchmark Shanghai Composite Index (SCI) rose to 1,052.94 points in September from 325.89 points in July, but fell to around 650 points when the IPOs reopened.

- On January 19, 1995, IPOs were again suspended and later resumed on June 9. During the five months, SCI again soared to 926.41 points in May from a low 524.43 points, but fell back after news of an IPO resumption was released.

- On July 5, 1995, the China Securities Regulatory Commission (CSRC) stopped IPOs in the stock markets, reopening the gate for IPOs on January 3, 1996. During the six-month hiatus, the stock markets gained marginally but plunged shortly thereafter. In early January 1996, the SCI remained stable around 500 points, but after IPOs were resumed, the stock markets took off on a bull run, with the SCI soaring to 1,258.69 points by the end of 2006.

- On August 26, 2004, the CSRC stalled IPOs for the fourth time, resuming the trade on January 23, 2005. The SCI proceeded on a downward spiral despite occasional up-swings.

- On May 25, 2005, IPOs were stopped and restarted on June 2, 2006, the longest suspension since the stock markets were initiated in 1992.

During the one-year period, the SCI climbed significantly, signaling the era of a new bull market.

After resumption of IPOs, the SCI rose above 6,000 points, a record high, in 2007.

- On September 24, 2008, IPOs were suspended for the sixth time and were resumed on June 18, 2009. During the nine-month period, the domestic stock markets nose-dived with the SCI falling to as low as 1,600 points against the backdrop of the global financial crisis. The massive 4-trillion-yuan ($586 billion) stimulus package adopted by the Chinese Government in November 2008 led to a significant rise in the stock markets. The SCI continued to grow after IPOs were reintroduced in June 2009.

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