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Shanghai index soars 2 percent
http://www.sina.com.cn 2004/02/03 14:16  Shanghai Daily

  Share prices in Shanghai's stock market registered the biggest single-day percentage gain in the past three weeks yesterday, as the circular issued by China's cabinet to encourage more institutional participation in the equities market stoked buying sentiment.

  The Shanghai Composite Index, which tracks both yuan-denominated Class-A shares and hard-currency Class-B shares, rose 2.08 percent to 1623.88.

  The A-share Index was up 2.09 percent to 1701.61 and the index covering B shares advanced 1.32 percent to 116.10.

  The Shenzhen Sub-Index gained 1.56 percent to 3774.88.

  "The circular has much played up the status of the capital market in China's economy," said Zhang Lan, vice president of Shanghai Shenyin Wanguo Research and Consulting Co Ltd, a research unit owned by Shenyin and Wanguo Securities Co Ltd. "You can perceive it as a signal that the Chinese government has already integrated the development of the capital market into the overall economic reform package."

  Wu Kan, head of the investment consulting department of Shanghai Securities Consulting Co Ltd, said the circular would provide a long-term incentive.

  "If you buy shares now, the downside risk is substantial as share prices already look high," he said. "But I am bull for the long term because of a strategic blueprint laid out for the growth of the stock market."

  The State Council, or China's cabinet, promulgated an unprecedented circular via the official Xinhua news agency, encouraging more companies to raise money from the stock market and calling for insurance firms, pension funds and annuity to invest more in equities.

  Fund management firms, which now handle combined assets of more than 160 billion yuan (US$19.28 billion), and insurance firms, will be made the dominant force of the market, according to the circular.

  The Chinese government wants to maintain the momentum in the country's economy, which expanded by a higher-than-expected 9.1 percent last year, and create more jobs for the influx of migrant workers into big cities.

  Companies would have a bigger appetite for capital to continue the rapid economic growth by stepping up investments and absorbing jobs.

  "The direct financing by companies from the stock market would reduce bank lending and thus the risk of bad loans that would further accumulate in China's fragile banking sector, which has been looming as a potential hazard to economic growth," said Zhang of Shenyin Wanguo Research and Consulting.

  The circular also said it would widen the capital pipeline for brokerage houses, such as through bond and share sales as well as even collateral borrowing from commercial banks.

  Citic Securities Co Ltd, the brokerage unit of China International Trust and Investment Corp, surged by the 10 percent daily cap to 9.11 yuan yesterday.

  The manufacturers of the telecommunications equipments also paced the gain yesterday as Datang Telecom Technology Co Ltd moved up to the 10 percent ceiling to 11.41 yuan and Eastern Communications Co Ltd was 10 percent to 6.36 yuan.

  "You will see more bull sentiment rally in the market afterwards," said Liu Shengjun, professor and research fellow with the case development center of China Europe International Business School.

  China's stock markets started in 1990, setting up two stock exchanges in Shanghai and Shenzhen.

  In its early stage, the two markets were largely used by the government as the financing group for cash-strapped and poorly-run state-owned enterprises.

  It was not until the middle of 2001 that the stock market regulator began to weed out the irregularities, putting the markets on a better-regulated footing.

  Last year, the two bourses recovered from the more than two-year downside, rebounding more than 10 percent respectively.




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