Shares in Shanghai ended higher yesterday following a solid performance by small-capitalized technology firms after the government decided to set up an independent trading board for small- and medium-sized firms.

　　The Shanghai Composite Index, which tracks both yuan-denominated A shares and hard-currency B shares, rose 1.01 percent to 1,555.44. The Shenzhen Sub-index added 0.78 percent to 3,487.11.

　　"That (the government's decision) boosted small-capitalized high-technology stocks as it means that such firms would be welcomed once trading on the new Shenzhen board begins," said Zhang Qi, an analyst with Haitong Securities Co Ltd.

　　Anhui Province-based Ustc Chuangxin Co, a small-sized technology company, closed at 10.8 yuan (US$1.3), up 8.22 percent. Jiangxi Province-based Tellhow Sci-tech Co finished at 14.19 yuan, a gain of 7.58 percent.

　　The China Securities Regulatory Commission on Monday approved the Shenzhen Stock Exchange to set up an independent board that will only accept the listings of small- and medium-sized companies.

　　"It is an important step to establish multi-tier capital markets in China," said the regulator in a statement. "It will also ease the problems in raising funds for small- and medium-sized companies."

　　The regulator, however, also said that it will be cautious and not rush into launching the Nasdaq-like second-board market for technology start-ups.

　　The regulator said it is hoped that listing small- and medium-sized technology companies on the new Shenzhen board will create a growth enterprise market in China.

　　Listing conditions for the new board will not be lowered as companies will still be required to report net income for three consecutive years.

　　China wants to use the stock market to fund its growing number of small- and middle-sized firms to help the world's seventh-largest economy meet the official target of a 7 percent economic growth this year.

　　At present, China's 29.3 million small- and middle-sized firms provide 75 percent of total employment in the nation and account for 51 percent of China's gross domestic product.

　　However, they face a capital crunch in expanding their business as the country's big four state-owned banks, which account for 70 percent of lending in China, have to offer loans to unprofitable state-owned enterprises due to government-directed lending policy.

　　"New share sales on the Shenzhen stock market will probably begin in about a month," said an investment banker with China Euro Securities Ltd, a joint venture between Xiangcai Securities Co Ltd and CLSA of France.

　　The securities regulator said it will control the pace of new share sales on the board for small- and medium-sized firms to prevent the massive liquidity outflow from the two main-board markets in Shanghai and Shenzhen.

　　The approval will also help the Shenzhen Stock Exchange to catch up with the Shanghai bourse in terms of the number of listed firms and liquidity.

　　The Shenzhen stock market now trails its Shanghai counterpart in the number of listed firms - 627 to 813 - due to suspension of IPOs for nearly four years as the government had planned to build it into a second board for high technology start-ups.

　　The plan was shelved as the government was concerned that the market would be hit by the global crash of technology-heavy stock markets following the bubble burst in 2000.

　　Steelmaking stocks also rebounded yesterday and helped the overall market.

　　"The rebound of the steel stocks also contributed to the gain on the index," said Wu Jie, an official with China International Fund Management Corp Ltd.

　　Liaoning Province-based Lingyuan Iron and Steel Co soared to 7.26 yuan, hitting the 10 percent daily trading cap. Anhui Province-based Ma'anshan Iron and Steel Co added 6.18 percent to 4.81 yuan.