Beijing unveiled a host of new measures aimed at breathing new life into China's sputtering stock markets – which hit eight-year lows in July – while forging ahead with the US$220bn state shares sale program that investors worry could trigger further falls in share prices. Qualified Foreign Institutional Investors (QFIIs) would be allowed to buy up to US$10bn in domestic shares, more than double the previous US$4bn quota. This amounts to 2.6% of the current total market cap of China's equity markets, valued at around US$380bn.
China's stock market will get a further boost from the launch of more bank-managed stock funds following the start of operations by China's first bank-operated fund management company, a joint venture between Industrial and Commercial Bank of China (ICBC) and Credit Suisse First Boston (CSFB). Additionally, regulators said they would ease restrictions on allowing the state social security fund to buy shares.
A total of 46 listed companies are participating in the state-held shares disposal program. The China Securities Journal said Beijing would try to expand it to include all listed companies, but no time-frame was given (around 70% of the shares of all China listed companies are currently not tradable). Many companies have outlined their plans for the state-held shares conversion, including programs to compensate current shareholders for the change in the shareholding structure. One of them, Citic Securities, has proposed compensating investors with 3.2 shares for every 10 shares they hold.
To preempt a resulting shares glut, the China Securities Regulatory Commission is barring companies from issuing new shares until they have completed their non-tradable shares conversion. Securities analysts say the freeze on new shares, likely to last through 2005, could further marginalize China's poorly performing stock markets, as many Chinese companies look to overseas listings to raise capital.
But, the overseas markets haven't been exactly kind to some Mainland companies. On their first day of trading in Hong Kong, COSCO Holdings, SIM Technology and GST Holdings each saw their share price fall more than 10% below their IPO price. Analysts said COSCO had a weak showing due to reports by the investment banks sponsoring the deal – UBS, HSBC and JPMorgan – that said the company's earnings will decline next year.
But some believe the stock market could get an uplift in October, when reform of China's brokerage industry is expected to be completed.