Hallowed Securities Law Gets Close Look

China's A-share stock market should not open to foreign investors in the coming few years, a veteran economist said yesterday.

"Now is not the time to introduce foreign capital into the A-share market, as it would result in a sharp fluctuation of the fledgling market," said Li Yining, a well-known economics professor at Beijing University and deputy director of the finance and economics committee under the Standing Committee of National People's Congress (NPC).

Since its establishment in the early 1990s, China's stock market has been split into two parts: A-share and B-share. The A-share stocks are only open to Chinese investors and calculated in renminbi, while B-share stocks are especially for overseas investors and calculated in Hong Kong and US dollars.

The shares are split because China's currency is not completely convertible and its capital market is underdeveloped.

China's Securities Law, made officially in July, includes a clause forbidding foreign investors from entering the A-share market. It was drafted by a special group of scholars, led by Li Yining, and adopted by the Standing Committee last year.

Some scholars recently suggested that in tandem with the coming entry into the World Trade Organization (WTO), China should revise the Securities Law to clear legal obstacles for letting foreign capital into the A-share market.

"In my opinion, such a revision is not available just now because of the scarceness of a foundation," Li argued.

Li said the introduction of foreign capital into the A-share market will be subject to three conditions: a completely convertible renminbi, mature investors and proper supervision, and the mixing of A and B shares.

Speaking to a proposed "second board market," Li said he prefers the name "growing enterprise market (GEM)" rather than "the high-tech board."

The second board market should be extended not only to high-tech firms, but also to other enterprises with good growth potential, he said.

The GEM should be launched as early as possible, thus giving a fresh force to broaden financing channels for promising ventures and also further vitalize the stock exchanges.

Li said the Securities Law has helped regulate and improve China's stock market in the past nine months.

The law has let authorities punish a series of violators, making the market more healthy for other investors.(China Daily)

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