As China approaches the opening of its stock market to overseas firms, experts believe the move will boost the development of the nation's capital market and help soak up excessive liquidity.

Signs of establishing the long awaited International Board next year have become more clear.

"I hope Shanghai will initiate the International Board next year, and the listed firms will enjoy simpler approval procedures," Fang Xinghai, director general of Shanghai's financial services office said at a financial forum early this month.

The Shanghai Stock Exchange (SSE) announced its 10-year development plan on December 11, saying from 2011 to 2013 it will beef up efforts to establish mechanisms guiding foreign companies to list on China's stock market and accelerate the return of red-chip firms, mainland companies that are registered abroad and listed in Hong Kong, to Shanghai's A-share market.

The time is right and the risks are controllable, as the capacity and quality of China's capital market have been sufficient to handle an International Board after 20 years of development, Fei Fangyu, vice director with the China Academy of Financial Research of the Shanghai Jiaotong University, told Xinhua Friday.

China has become the world's third largest stock market, as the total market value of the Shanghai and Shenzhen markets hit 20.96 trillion yuan ($3.07 trillion) as of the end of May, according to the country's securities regulator.

Most recent figures indicate, as of the end of October, that the SSE had witnessed 888 companies listed, with a combined market value standing at 18.7 trillion yuan, the sixth largest among its global counterparts, while total turnover of shares in Shanghai reached 23.2 trillion yuan in the January-October period.

China, the world's second largest economy, needs an open and internationalized capital market. At the same time, creating a foreign board is also a crucial step for Shanghai to build itself into a global financial center, said Cai Hongping, Chairman of Investment Banking of UBS for Asia Pacific regions.

Establishing an International Board will fuel the development of China' s capital market, as it is conducive to improving company management, strengthening regulation supervision, and consolidating transparent systems, said Laura Cha, vice chairman of HSBC Asia Holdings Ltd.

Further, analysts said it would absorb domestic excessive liquidity, which will help take off mounting inflationary pressures facing China's economy.

The country's inflation rose to a 28-month high of 5.1 percent in November, while bank lending looked certain to exceed the 7.5-trillion-yuan full-year target the government set at the start of the year.

Similarly, growth in the broad money supply (M2)—cash in circulation and all deposits—will surpass the government's full-year goal of 17 percent.

Introducing the International Board will channel more domestic capital abroad, which will diversify investment avenues and therefore help curb speculations in property and agriculture products markets, said Ha Jiming, managing director of the Goldman Sachs Group Inc.'s investment banking division.

A report issued by the Chinese Academy of Social Sciences showed that stock and endowment assurance investment accounted for less than 30 percent of the financial assets of China's residents in 2008, while the rest of their money went to deposits.

"China's residents lack quality investment products and channels, while the International Board that aims to introduce first-class foreign companies will fill the gap," Ha added.

According to Fang Xinghai, the London-based banking behemoth HSBC, Standard Chartered Bank, and some other overseas companies from the finance, telecommunications, consumer goods and manufacturing industries have expressed the desire to sell shares in Shanghai.

(Xinhua News Agency December 19, 2010)