China lifts ban on share market listings

Updated June 23, 2009 11:56:07

In another sign of confidence in China's economy, regulators there have lifted a nine month ban on companies making new stock market listings.

A small pharmaceutical company has been given approval to list on the stock exchange and issue shares. The ban on so-called initial public offerings (IPOs) came after China's main stock market index lost 65 per cent last year. But it is one of the better performing global stock markets .

Presenter: Karon Snowdon, finance correspondent
Speaker: Manop Sangiambut, deputy head, China Research, CLSA, Shanghai

SNOWDON: The Chinese government has always managed supply and demand but with last year's massive plunge in the stock market it put a ban on any new stock market listings.

The ban has just been lifted with approval for the Sanjin Pharmacuetical company to offer shares.

It coincides with an improving stock market plus an overhaul of regulations.

The new guidelines aim to avoid some of the extreme price volatility of the past and to ensure retail or individual investors are able to get a fair proportion of new share issues.

Manop Sangiambut from CSLA in Shanghai says the improving general economy is also a factor in the lifting of the ban at this time.

SANGIAMBUT: Given what we have in terms of the macro economic data that show sequential improvements in the past few months the resumption of the IPO basically sends a signal that the government is more comfortable with the macro outlook right now in China.

SNOWDON: And the stockmarket has been showing signs of improvement?

SANGIAMBUT: Yes the market has been rising massively on the year-to-date basis and outperforming the regional markets by a big margin.

SNOWDON: But they're remaining slightly cautious, the IPO offerings are going to be gradual?

SANGIAMBUT: Yes the fact that they decided to kick off the process with a rather small cap company, like Sanjin Pharma and we also heard that the other names that are there for final approval are rather small, so this indicates that the intention is to try not to overwhelm the market with new supply.

SNOWDON: The authorities are testing the market.

There are 33 other mostly small to medium companies waiting to get the go-ahead to make initial public offerings of A-shares.

A-shares are denominated in yuan and are restricted to Chinese nationals or approved foreign institutions. B-shares are traded in foreign currencies.

Sanjin will reportedly issue up to 40 million A-shares with hopes of raising 600 million yuan or about $US88 million.

In contrast the major home builder - China State Construction Engineering has had to bide its time for a year so far and could issue billions of shares.

The large number of IPO's in the past swamped the market and contributed to the stock market collapse but Manop Sangiambut believes the risk of opening the door now is slight.

SANGIAMBUT: The Government is trying to manage the process but again this is not a market mechanism. At some point some of the larger deals for example in China say construction which by further estimate is going to be around $US6 billion to $US7 billion. So it depends on the timing of the lifting, also market response at that particular point in time. So there could be some risks but at this point we believe the risk is quite mild.

SNOWDON: Quite mild, is there a chance down the track though given that there's presumably some pent up demand for these offeirngs. Is there any chance of an asset bubble forming in the future, some way down the track?

SANGIAMBUT: That's certainly a risk in those areas, for example with all of these different sectors there are going to be certain sectors that will sustain all supply problems for longer and that may create bubbles in the future for certain industries.

SNOWDON: China's market is among the best improved this year - the Shanghai Composite Index which coveres A- and B-shares has recovered last year's losses.

Very big companies like China Mobile and the bank HSBC need different arrangements to list in the mainland Chinese market but are also expected to do so by the end of this year.