FW: China Stock Market Note

[Karen Watters Cole]

From PBS Nightly Business Report.  Comment?  Speculation?  Bets?  - KWC 10/28/02: Stock Trading Has A Sinister Side In China @ http://www.nightlybusiness.org/trnscrpt.htm#STORY3 SUSIE GHARIB: Buying stock in companies is a pretty easy process in the United States, but that's not true elsewhere in the world. Take China, for example. Noah Smith reports. NOAH SMITH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Twelve hundred of China's best companies are listed on its domestic stock markets. But, sorry, they're off limits to foreign investors.  Shares in China's listed companies are divided into three main types.  So-called A shares are traded on the open market but constitute less than a third of the total.  Almost all the rest are held by the government in the form of state shares and legal person shares. The state shares cannot be sold even to private Chinese investors and none of them can be bought by foreigners. FRASER HOWIE, CHINA SECURITIES SPECIALIST: That has created a very warped marketplace and limits the effectiveness of the stock market, the effectiveness in terms of allocating capital, of bringing market discipline to the listed companies themselves.  And, also, it's now put the government in a very difficult position in that it's unable to raise more funds off its existing share holdings. SMITH: Beijing needs to raise money, in part to support billions of dollars in pension liabilities.  And since China's entry last year in the World Trade Organization, pressure has been building to ease restrictions on foreign investment.  In the past few months, several government departments have issued statements that show support for foreign investment in listed companies, but there hasn't been any official policy change.  Meanwhile, reports in China's state press say that pilot deals are in the works. NICHOLAS HOWSON, PAUL, WEISS, RIFKIND, WHARTON & GARRISON: Something is up.  No one is sure exactly what is up, but my bet would be that within the next six months you will start to see experimental or ad hoc or specific approvals of disposals of state owned shares, legal person shares to foreign investors. SMITH: Such talk has China's more aggressive listed companies looking for ways to tap overseas money.  We're talking with some foreign investors, he says, but right now we're limited to cooperating with foreign companies on product development.  Foreign investment in listed Chinese companies could have a strong positive impact on issues like transparency and corporate governance.  Currently, even poor performers are supported by their state owners and are shielded from shareholders concerns. HOWSON: It's very, very hot ideologically.  It's very, very hot commercially because it's going to dilute the state's interest and it's going to potentially have a very, very big impact on the capital markets. SMITH: That's one reason test cases are expected before current regulations are changed.  In the meantime, eager foreign investors and Chinese listed companies can only hope that Beijing sees the benefits of opening its markets to the world.  Noah Smith, NIGHTLY BUSINESS REPORT, Beijing. Outgoing Mail Scanned by NAV 2002