China's securities regulator has pledged to press ahead this year with reforms that may include the establishment of a new Nasdaq-style board for smaller start-up companies and the introduction of margin selling and other tools investors may use.

The commitment comes against a backdrop of sharply slowing economic growth that may erode corporate earnings and amplify stock-price volatility, making market overhaul a more difficult task, analysts said. China was the world's worst-performing major stock market last year.

"The big fluctuation of the A-share market in the past two years was partly due to slow progress in the build-up of regulatory systems," said Chen Wenzhao, an analyst with China Merchants Securities Co. "The signal from the securities watchdog this time is that the country will do more to improve market fundamentals in 2009."

The China Securities Regulatory Commission said in a statement after its annual work conference last month that it will proceed steadily with market innovations and continue to open equity investment to overseas participants on a measured basis.

The commission said the domestic stock market remains healthy even after its 66-percent drop last year. It said its priorities are the protection of investors' interests and a continuing crackdown on market manipulation.

The long-awaited growth enterprise market in Shenzhen is likely to be unveiled late in the year as the government steps up efforts to help small companies raise capital during the financial crisis, analysts said. The so-called GEM is to be patterned after the Nasdaq market in New York, with emphasis on smaller, cash-strapped technology companies that show solid growth potential.

The Chinese central government has been preparing for the GEM's launch in the past three years. Earlier fears that GEM might siphon capital from existing main markets have eased, with industry analysts now saying the new bourse will be focused on smaller capital raisings and then only on a trial basis.

"The spreading financial crisis has threatened the survival of smaller companies in China, and the second board will give them a shot in the arm," said Xu Lili, an analyst with Bohai Securities Co. "The launch of GEM carries a low risk."

The Nasdaq-like board will have lower listing thresholds than the main boards in Shanghai and Shenzhen. Listing candidates must show two consecutive years of profit, with combined earnings of at least 10 million yuan (US$1.5 million). If a firm fails to meet the cumulative profit requirement, it must have revenue of at least 50 million yuan and a profit of at least 5 million yuan for the latest fiscal year.

By comparison, firms that list on the main boards must post profit for three years in a row, during which collective earnings must be at least 30 million yuan.

GEM is only part of the ambitious market overhaul announced by the regulator. The commission also said it would work on establishing China's first equity index futures, margin trading and short selling.

Market observers are divided on whether innovations that feature bigger risks and may stoke speculative activity are appropriate in a year when the economy faces a drastic downturn.

China, the world's third-largest economy, posted growth of 6.8 percent in the fourth quarter of last year, dragging growth for the full year to a seven-year low of 9 percent.

The decline, hit by a downturn in global demand for Chinese goods, has forced the government to start a massive 4-trillion-yuan stimulus package aimed at boosting investment and spurring domestic consumption to offset weaker exports.