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Boom and bust on the road to prosperity

By Jia Hepeng (China Daily)
Updated: 2007-02-05 09:15

At the end of 2006, China recorded 80.06 million stock investors about 4 million more than the United States. Today, 5.9 percent of Chinese are investors, a number that grew by 10 percent since January 1, 2005.

Currently, more than 80 percent of the Chinese market's tradable stocks are purchased by individual investors rather than institutional investors.

By the New Year, China had 1,434 domestically listed companies in its A-Share and much smaller B-share markets. The total market value of the listed companies was 8.9 trillion yuan (US$1.14 trillion), and the value of tradable stocks was 2.5 trillion yuan.

By the end of September 2006, China had 57 registered fund management companies issuing hundreds of funds. Experts believe the amounts of capital operated by unregistered private funds are much greater than those generated by registered fund management companies.

Shi Jinyong, a veteran fund manager in Taiyuan, of North China's Shanxi Province, says that while the market booms today, it has become much more stable than it was during the last bullish period between 1998 and 2001.

A series of policies have dramatically improved the stock market environment since last year. One such improvement is the listing of high quality blue chips, such as the Bank of China (BOC) and the Industrial and Commercial Bank of China (ICBC). Another is the availability of fully tradable stocks of listed State-owned enterprises (SOEs). Shi also cites a series of policies regulating funds and insurance companies' investments.

He predicts that because of these improvements, the market will grow up to 5,000 points.

Previously, only 30 percent of SOE stocks could be traded in the market, but the securities market reforms of 2005 changed the landscape.

It seems that new investors, who usually pursue newly issued blue-chip stocks like those of BOC and ICBC, are making greater profits.

Statistics from the China Securities Regulatory Commission show that during the first 10 days of this year, 129,168 new stock investors rushed to the market daily, while the market index tripled from a year before.

However, they face tremendous risks. Mei Yuxin, a senior economist at the Chinese Academy of International Trade and Economic Cooperation, said that the hundreds of billions of US dollars sneaking into the Chinese stock and property markets push up stock and property prices. But once the money is taken out, there will be disastrous collapse in these two markets.