China sets up fund to protect stock investors (Reuters) Updated: 2005-09-29 09:09 SHANGHAI - China has launched a stock rescue fund,
which will focus on compensating investors and helping brokerages that run into
problems, one of a raft of measures designed to buoy the nation's sickly stock
markets.
Money for the fund will come from a small portion of stock
trading commissions from the Shanghai and Shenzhen stock exchanges, as well as
brokerages, according to rules governing the use of the fund published in
official newspapers on Thursday.
Regulators set up a company to manage the fund in early September, overseen
by five government agencies, including the China Securities Regulatory
Commission, the Ministry of Finance and the People's Bank of China.
"The launch of the fund will allow us to quickly compensate investors, in
particular small investors, when brokerages face closure or bankruptcy," an
official from the company said in a statement.
The rules did not say the fund could be used to rescue the stock market, but
they did say the money could be used "in other ways approved by the State
Council" -- China's cabinet.
Analysts have reckoned the fund could amass up to 50 billion yuan ($6.2
billion) -- 1.5 percent of the market's $430 billion capitalisation -- by the
end of the year.
But Beijing has never given details on the size of the fund, unveiled earlier
this year and called the Fund to Protect Securities Investors.
China's key stock index has fallen 11 percent so far this year and is
hovering at multi-year lows, hit by factors such as Beijing's economic cooling
steps. It dived 15 percent in 2004 to become the world's worst performer among
major stock markets.
That has hammered the country's struggling brokerages. Beijing is now
consolidating the country's loss-making securities broking industry, which is
crowded with more than 100 players.
Beijing has shut or ordered the takeover of 20 brokerages since 2004,
including fifth-largest China Southern Securities, but is in the process of
bailing out better-performing ones, such as Guotai Junan Securities and Shenyin
& Wanguo Securities.
The government has often stepped in to cover obligations when securities
houses fail. It fears a social backlash from angry investors and wants to
preserve the shaky stock market as a source of company funding.
Brokerage failures have hammered a long list of companies, from biggest
domestic insurer China Life Insurance Co. and largest domestic carrier China
Southern Airlines to top car maker Shanghai Automotive Co. -- all of which lost
money or were forced to make heavy provisions when brokers failed.
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