By Xin Zhiming (China Daily)
Updated: 2007-01-23 09:38

China's yuan-denominated A-share market will become the world's third largest in the next 10 years, with its value reaching $10 trillion in 2020.

People would have been taken to be crazy had they forecast such a possibility one or two years ago when investors nearly lost hope in the bearish market.

But the tide has turned now. As the stock market continues to make big gains and touch historical highs, analysts are getting optimistic and it's more likely that they have the small investors to back them up.

The bold forecast was made by Hu Zuliu, general manager of Goldman Sachs Group (Asia), at China Capital Market Forum in Beijing on Saturday.

And he was not alone. Wu Xiaoqiu, director of Renmin University of China's Finance and Securities Institute, which hosted the forum, corroborated him, and said the Chinese market would become one of the biggest in the world with the best fluidity by then.

The performance of Chinese stocks, the second best in Asia last year has obviously fueled their high spirit. In four of the previous five years, they dropped, only to rise by 80 percent last year. This year, the stock index is largely on the rise despite some recent corrections.

Last year's boom was not accidental. A series of systematic adjustments in the previous years, when the market was in recession, laid the foundation for the rebound.

Regulators have made some headway in strengthening corporate governance of listed companies and their information exposure, Hu said. "Breakthrough has also been achieved in (introducing) QFII (qualified foreign institutional investor) and the share merger reform, which boosted investor confidence."

China launched QFII in 2003 and fine-tuned its rules last August, slashing the threshold to attract more overseas investment in its stock market. The combined QFII investment quota had exceeded $9 billion by last December.

Insurance funds were allowed entry into the stock market in 2004, bringing in more capital to the thirsty market.

"The bullish market has been built partly on the various sources of fund allowed in the market," said He Qiang, professor with the School of Finance, Central University of Finance and Economics.

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