The arguments in favour of the so-called second board were easy to make. Such companies, mostly private, were starved of funds by the lazy state banks; and the listing process to get onto the main boards in Shanghai and Shenzhen would take years, by which time they would be out of business.
But as Zhu, a veteran of hosing down many financial scandals, knew all too well, opening up a new market was risky, because it would simply repeat the problems of the main exchanges.
Zhu, now retired and firmly out of sight, must have allowed himself a grim chuckle when the new Shenzhen board launched in late June with all the exuberance of the good old days on the main exchanges.
The prices of the eight stocks rose by an average of 130 percent (the largest by 325 points) before flopping back by their daily ten per cent limit the following trading day.
Just as on the main board, the Initial Public Offering prices were set low, by administrative fiat, rather than the conventional book-building method, to ensure a big party on day one. So big, in fact, that the hangover will last for many months afterwards.
Despite the promotion of the second board as a new type of bourse, the listing rules ares the same as the main exchange and the companies that debuted last week had gone through the same IPO process run by the China Securities Regulatory Commission.
Even worse, these so-called "private companies" listing in Shenzhen have mimicked the worst problem of the state enterprises on the main exchange: a majority of their shares are held off the market and thus cannot be traded. And what happens will all these shares, as they eventually must, come into the market? Prices will plummet, the same sort of reasoning about the overhang that has shackled the main board for so long.
Chinese has made great advances in recent years but the stock market remains a laggard, and a very damaging one at that. The inability of the stock market to do its job – raise money, and act as a daily, public conduit for a multitude of signals about the economy – has left the country more reliant than ever on one of its least fleet-footed institutions, the state-owned banks.
Fat Dragon, a China bull, has previously advised readers to buy China stocks on the dip, but don't forget the proviso. Only buy the ones traded offshore.