(Agencies)
Updated: 2008-01-13 11:52

China's securities regulator will encourage more companies to sell shares on domestic stock markets and increase the proportion of free float for traded companies after the benchmark index surged 162 percent last year.

The China Securities Regulatory Commission (CSRC) will "expand the scale of fundraising in the capital market, increase the amount of tradable shares and push forward the listing of large companies and high-quality medium-sized companies," Shang Fulin, chairman of the watchdog, said yesterday at a conference in Beijing.

"The regulator uses the tactic of share sales to soak up liquidity and prevent the markets from rising too fast," said Wu Kan, who manages the equivalent of $41 million at Dazhong Insurance Co in Shanghai.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, closed at 5699.15 on Friday, gaining 23 percent since touching an almost four-month low on November 28. The CSI 300 was the best performer last year among the major benchmarks after almost tripling.

The measure is valued at 51 times reported earnings, the most expensive in the Asia-Pacific region, as domestic investors have been shifting into equities from bank savings to seek returns that can beat an 11-year high inflation rate.

The total market capitalizations of stocks in Shanghai and Shenzhen exchanges reached $4.7 trillion on Friday, unseating Japan to become the world's second-biggest, next to the US.

China will introduce financial futures at the appropriate time, continue to develop corporate bonds and allow more innovative equity and fund products, Shang said.

The government has already completed systematic and technical preparations for launching the contract for index futures that will use the CSI 300 as the underlying index, the Xinhua News Agency reported in October, citing Shang.

The China Financial Futures Exchange, where the index futures will trade, has been accepting futures brokerages as its members, making final preparations for the derivatives that will allow domestic investors to short for the first time.

Strengthen Supervision

The government will also encourage brokerages to set up direct equity investments and let bigger, better-run securities companies grow and weed out poor ones, he said.

The securities regulator also plans to keep close tabs on movements of overseas hedge funds and strengthen market supervision to crack down on illegal activities and violations of rules, Shang said.

More than 57 million investment accounts were opened in the first 11 months of last year, up from 5.4 million for all of 2006, according to the China Securities Depository and Clearing Corp.

"The subprime crisis in the US will have a negative impact on China's capital market in the long run, diminishing the demand for China's exports and reducing revenues of listed companies," he said.