(China Daily)
Updated: 2007-11-06 15:04

The debut of PetroChina on the Shanghai Stock Exchange yesterday marked the emergence of the world's first trillion-dollar company. It also boosted the value of China's public offerings this year to a record $61 billion, leaving other global financial centers trailing in its wake.

The event symbolized the growing might of the Chinese economy, which is now the world's fourth largest, and will serve as the single most important contributor to world growth this year.

However, for policymakers who have become increasingly resolute about preventing asset bubbles, the return of PetroChina might not have boded all that well, especially after the value of its shares almost tripled during their first trading day.

The domestic listing of the country's largest oil and gas producer was part of the authorities' efforts to mop up domestic investor liquidity by encouraging several of the country's largest companies to list in Shanghai or Shenzhen.

It was once believed that an increased supply of such blue chip shares would help satisfy investors' appetite for trading and reduce overvaluation in the domestic stock market.

PetroChina said in a statement that its public offering will bring renewed energy to domestic capital markets and also provide an important investment indicator.

But with its shares trading at about 60 times earnings, it is still unclear whether this energy conglomerate will help stabilize the domestic stock market or add fuel to the fire.

The benchmark Shanghai Composite Index has more than doubled in value this year on top of a 130-percent surge last year.

One reason for the situation on the demand side is that Chinese investors have piled into the market, seeking higher returns than they can earn on bank savings.

Another less-mentioned reason on the supply side is the high valuation of new blue chips like PetroChina. The fact that Chinese companies now represent five of the world's 10 largest by market value justifies investor worries that the market might have become too expensive.

Recently, the central government has made clear its intention to closely watch developments in the stock market since abnormal fluctuations affect both the national economy and the interests of large numbers of shareholders now that so many people have entered the stock market.

It is necessary for the government to take measures to prevent asset bubbles and avoid huge fluctuations in the stock market. And big blue chips should certainly also be put on the radar.