The time is now mature for lifting the ban and letting institutional investors into the secondary market of B-shares.

The authorities could allow institutional investors to establish funds invested in B shares. The funds invested in A shares now total more than 150 billion yuan ($19.5 billion), while there is not a single B-share fund. It will inject vigor into the market and ease the tension in the currency market by providing an outlet for major investment with money collected from individuals.

While granting institutional investors access to the B-share market, the authorities should also try to boost the B-share market itself to balance supply and demand.

Currently there are only 111 companies issuing B shares in the Shanghai and Shenzhen stock exchanges with a total of 16.4 billion shares circulating. The market value of the shares stands at 100 billion yuan ($12.9 billion) at the current exchange rate.

By May 18, the shares in circulation on the A-share market for Sinopec, the listed company with the largest market value in both stock exchanges in Shanghai and Shenzhen, were worth 43 billion yuan ($5.51 billion), almost half the total value of the B shares in circulation.

With the growth of the B-share market urgently needed, a proper approach would be to start the public offerings of companies, especially those with excellent business records and prospects. Blue chips on the B-share market would help stabilize the market during the speedy swell of investment.

The author is a researcher with the Institute of Finance under the Chinese Academy of Social Sciences

(China Daily 05/22/2007 page10)

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