China is aiming at a stable and healthy capital market to match its rapid economic growth. Although the regulators are worried about bubble in the market, they will at the same time prevent a sudden "drop dead" like in the 1990s.

On the sidelines of the ongoing 2007 Annual Meeting of the Board of Governors of the African Development Bank Group in Shanghai, central bank governor Zhou Xiaochuan was surround by journalists. On the question if China's heated stock market is on a normal development path, Zhou avoided replying directly but said the stock market is not under his direct control.

But 10 days earlier on the central banker's conference in Basel, Zhou admitted that the possible bubble in stock market was "worrisome" to him. This time, after Tuesday's 147-point slump of the benchmark Shanghai Stock Index, Zhou became more cautious in sending out signals.

Asked about possible monetary policies by the People's Bank of China, Zhou said there is still room for more hikes in the required deposit reserve ratio for commercial banks. "But it does not mean we will apply the instrument right now," he added.

The red-hot A-share market is driving a wave of Hong Kong-listed mainland companies coming back home. The securities regulator is also speeding up formulating a new rule governing A-share issuance of returning overseas-listed Chinese companies.

According to sources involved in the issue, the detailed provisions of the new rule might preclude smaller Hong Kong-listed companies from listing in the A-share market, at least for now. And a company whose parent or subsidiary company is listed on the mainland, is not eligible either. Only red-chips like China Mobile, China Netcom, CNOOC and Lenovo are the targets. And such a company needs to have annual net profit of over 1 billion yuan to be allowed to come back.

In addition, direct initial public offering (IPO) of A shares is preferred over the China depository receipt (CDR) style and "China Unicom" way. Because the CDR is suitable to the "real" foreign enterprises, and it involves foreign exchange controls, and the "China Unicom" style in which the company splits itself up into parts to be listed on different exchanges, results in difficulties in supervision and management, the securities watchdog is apparently favoring the IPO approach, said sources.

If the rule sets clear definitions for the qualified home-returning companies and simplifies the application process, it may speed up the listing of red-chips on the mainland, thus help dilute the overwhelming capital inflow. More IPOs of returning red chips, together with the expansion of the qualified domestic institutional investor scheme, may alleviate the excessive liquidity and prevent an over-heated stock market, analysts said.

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