A-share market will become the world's third largest in the next 10 years, with
its value reaching $10 trillion in 2020.
A Chinese stock
investor checks shares prices at a security firm in Hangzhou,
January 22, 2006. China's stock indices surged more than 3 percent to an
all-time high on Monday, boosted by the positive tone of a government
meeting at the weekend. [Newsphoto]
People would have been taken to be crazy had they forecast such a possibility
one or two years ago when investors nearly lost hope in the bearish market.
But the tide has turned now. As the stock market continues to make big gains
and touch historical highs, analysts are getting optimistic and it's more likely
that they have the small investors to back them up.
The bold forecast was made by Hu Zuliu, general manager of Goldman Sachs
Group (Asia), at China Capital Market Forum in Beijing on Saturday.
And he was not alone. Wu Xiaoqiu, director of Renmin
University of China's Finance and Securities Institute, which hosted the forum,
corroborated him, and said the Chinese market would become one of the biggest in
the world with the best fluidity by then.
The performance of Chinese stocks, the second best in Asia last year has
obviously fueled their high spirit. In four of the previous five years, they
dropped, only to rise by 80 percent last year. This year, the stock index is
largely on the rise despite some recent corrections.
Last year's boom was not accidental. A series of systematic adjustments in
the previous years, when the market was in recession, laid the foundation for
Regulators have made some headway in strengthening corporate governance of
listed companies and their information exposure, Hu said. "Breakthrough has also
been achieved in (introducing) QFII (qualified foreign institutional investor)
and the share merger reform, which boosted investor confidence."
China launched QFII in 2003 and fine-tuned its rules last August, slashing
the threshold to attract more overseas investment in its stock market. The
combined QFII investment quota had exceeded $9 billion by last December.
Insurance funds were allowed entry into the stock market in 2004, bringing in
more capital to the thirsty market.
"The bullish market has been built partly on the various sources of fund
allowed in the market," said He Qiang, professor with the School of Finance,
Central University of Finance and Economics.
A move of more far-reaching consequence came in 2004, when the State Council
released the so-called "nine-point" guideline. It is committed to improving the
quality of listed companies and plugging loopholes of the market, the main
causes of investor detachment. Securities regulators soon issued a series of
rules to implement the guideline to correct the problematic market.
In 2005, regulators cleansed the brokers market, disqualifying a number of
brokerage firms that were embezzling investor funds and were guilty of other
The most crucial step to reconstruct the market, none would deny, was the
smooth share merger reform.
The reform, once a taboo for small investors, has proved to be a shot in the
arm for the market because it has cleared the barriers for a smooth float of all
types of shares. "It unifies interests of all investors, easing further reforms
of the capital market," said Li Yongsen, professor with the China Youth
University for Political Sciences.
The revised Securities Law and Corporate Law, enforced from January 1, 2006,
gave the legal back-up for the market boom. A year of boom has ushered in a
string of changes, including improved investor sentiment. More than 175,000
people rushed to open stock accounts in a week at the end of 2006.
But "don't be misled by the bustling world of money," warned Wang Zhongming,
director of Research Center of the State-owned Assets Supervision and
Administration Commission. "We still face many problems."
Weak market mechanisms and poor financing efficiency are factors worrying
Wang, but they can be eased out gradually as the market restructures.
What can have a vital impact on the strategic change of the market is the
return of some of the 320-plus major domestic companies, which have opted to
list overseas, to the A-share market. "China must have its blue-chip market led
by about 30 elite companies," said Ding Guorong, chairman of Shenyin and Wanguo
(China Daily 01/23/2007 page4)