China eases foreign access to its shares

SHIDONG - The Chinese Government plans to more than double the amount of domestic shares that can be owned by overseas funds to US$10 billion ($14.8 billion) as part of a round of measures to prop up the nation's stock markets.

A regulatory official also said the China Securities Regulatory Commission would extend a moratorium on share sales and encourage buying by domestic institutional investors, such as the social security fund and insurers, said the official, who declined to be identified.

He was confirming a report in the China Securities Journal.

The Government is betting on pent-up demand from overseas investors for access to China's domestic stock markets, which is capped at US$4 billion for 27 Qualified Foreign Institutional Investors, including JPMorgan Chase & Co and UBS. With the Shanghai and Shenzhen benchmark indexes slumping close to eight-year lows, some investors said valuations were attractive.

"This will boost the demand for stocks, as the appetite for investment quotas is tremendous," said Shanghai-based Rico Cheung, who manages about US$157 million at China International Fund Management Co, a venture with JPMorgan.

"China's stocks are at a reasonable level to buy now."

The Shanghai and Shenzhen Composite Indexes have slumped on concern a Government plan to dispose of about US$220 billion of state shareholdings will result in a flood of unwanted stock. The Shanghai index has dropped 28 per cent, while Shenzhen's is down 32 per cent.

The two stock indexes are the worst performing among 80 stock benchmarks tracked by Bloomberg worldwide over the past 12 months. The slide in stocks contrasts with the nation's economic growth, which expanded 9.4 per cent last year, the fastest pace in eight years.

The Shanghai index gained 1.2 per cent after the report of the foreign investment plan, while the Shenzhen benchmark added 1.5 per cent. Detailed rules would be released soon, the official said. He declined to give a timetable.

About two-thirds of the market value of China's publicly traded companies is held in non-tradeable stock.

The securities regulator will suspend share sales until the 46 companies picked in the first and second phases of the disposal plan have completed the conversion of their non-tradeable state-held shares to stock that can be bought and sold.

The securities regulator also said it would work on detailed rules governing the non-tradeable share disposal after the companies complete the conversion of their non-tradeable stock.

There are 1381 publicly traded companies in China, according to the websites of the Shanghai and Shenzhen stock exchanges.

Overseas investors with at least US$10 billion in assets are eligible to apply to the Chinese government for licences.BLOOMBERG