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China's stock market has surpassed US$1 trillion in value after major benchmarks more than doubled last year and the government encouraged the domestic listing of state-owned companies such as Industrial & Commercial Bank of China.
The combined value of shares listed on the Shanghai and Shenzhen stock exchanges rose to NZ$1.47 trillion, making it the world's 10th largest equity market, according to data compiled by Bloomberg.
"It's an inevitable result of the market rally and the addition of IPO shares," said Lin Tongtong at HSBC Jintrust Fund Management in Shanghai.
"China's market value will be able to soon catch up with Japan, if the government keeps up the fast pace of new share sales."
The value of China's stock market has more than tripled since the start of 2006, helped by a programme to dispose of more than $290.56 billion of mostly government-held, non-tradeable shares.
Investors were lured back to equities after a year-long ban on new share sales was lifted in May.
Japan is the biggest market in Asia, with companies valued at $7 trillion listed, followed by Hong Kong with $3.05 trillion and then China. The US market, the world's largest, is valued at $25.3 trillion.
The Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, has already gained 11 per cent this year, having jumped 117 per cent in 2006.
The Shanghai Composite Index, comprising all stocks traded on the bigger of China's two exchanges, surged 127 per cent last year and closed at an all-time high on Wednesday.
China Petroleum & Chemical and China Merchants Bank were among the biggest contributors to the gains this year.
In May 2005 the China Securities Regulatory Commission restored a programme to convert all companies' non-tradeable shares into tradeable common stock.
Investors, concerned the conversion of non-tradeable stock would flood the market with unwanted shares without compensating minority shareholders, pushed the Shanghai index to an eight-year low in July 2005.
To win approval from small investors this time, major shareholders of listed companies were required to offer free stock or cash as compensation for any loss tied to an increase in share supply. The regulator also imposed a year-long moratorium on new share sales to prevent the market being inundated.
China Petroleum, Asia's biggest oil refiner, also known as Sinopec, has climbed 105 per cent since October 10, when its parent gave public investors 2.8 shares for every 10 held as it converted its non-tradeable shares.
To soak up the shares and prevent the market from slumping, the securities regulator allowed commercial banks to set up fund-management units and doubled to $14.5 billion what foreign investors can invest in domestic equities.
A total quota of $13.08 billion has so far been granted to 53 select overseas institutions under the qualified foreign institutional investor (QFII) programme.
China's economy, which in 2005 overtook the UK as the world's fourth largest, averaged annual growth of 9.6 per cent in the past five years. It expanded 10.4 per cent in the third quarter from the year earlier, spurring demand for loans and boosting banks' earnings.
"There is still upside for China's stock market," said Zhang Ling at Credit Suisse Asset Management in Beijing. "We still have lots of good and big companies that have yet to go public."
Shares of China Merchants Bank, the nation's third-biggest publicly traded lender, more than doubled last year. It reported a 39 per cent increase in net income for the first nine months as lending jumped 14 per cent.
A stronger yuan has prompted investors to chase property stocks as it lures speculative money to the real estate market, which can offer higher yields than bank deposits. A strengthening yuan boosts the returns on dollar-based investors.
The yuan has gained 3.7 per cent since the central bank ended a decade-old link to the dollar on July 21, 2005. Shares of China Vanke Co, the nation's biggest property developer, more than tripled last year.
Newly listed lenders have also helped drive gains in the index. ICBC, the country's biggest lender and the largest constituent of the Shanghai index, has gained 73 per cent since its debut on October 27. It raised 46.6 billion yuan (US$6 billion) in the world's biggest initial public offering last year.
Bank of China Ltd., the country's second biggest, has advanced 35 per cent since its first day of trading on July 5, after raising 20 billion yuan selling domestic shares for the first time.
China Life Insurance, the nation's biggest insurer, Air China, the country's biggest international airline, and Guangshen Railway, China's second-biggest publicly traded rail operator, returned to the home market after selling stock in Hong Kong.
