"With 10 years' exploration, we have made tremendous achievements in developing the securities market," said Zhou Xiaochuan, chairman of the China Securities Regulatory Commission (CSRC), the industry watchdog, at a recent symposium on the national stock market.

Since 1990, the stock market has evolved from nothing to a 4.6-trillion-yuan (US$554 billion) market with a total of 1,063 listed companies by the end of November this year.

"As investors' financial strength has multiplied, it is now possible for large capitalized stocks to list," Zhou said. "So we can expect a sharp rise in the stock market value in the next two to three years."

Moreover, the market has shifted from serving solely State-owned enterprises to serving more types of enterprises including private firms.

In the past decade, more than 400 billion yuan (US$48 billion) of funds have been raised on the stock market to support the development of many industries, said Qiu Xiaohua, vice-director of the National Statistics Bureau.

Securities brokerages have also enjoyed a robust growth in the period. So far, 2,600 securities operational outlets belonging to 98 securities companies are operating in China.

Zhou admits these brokerages were "immature" in the first stage. "They had no professional staff, no internal control system and no brand."

Major securities houses around the country have now grown more mature. Despite their smaller size compared to foreign conglomerates, brokerages are able to conduct comprehensive securities businesses and have basically set up internal control mechanisms to prevent irregularities.

Computerization has been popularized in domestic securities firms and stock bourses to enable the real-time supervision on stock transactions to root out irregular behaviour.

The investors' group has also been expanded with retailing investors totalling 55 million, a number of institutional investors and some closed-end funds.

A large number of investors have grown rich over the 10 years despite the ups and downs of the stock market, and people's stock knowledge has been greatly enriched, Qiu said.

At the market's founding, listed firms even went to the streets to persuade locals to buy their shares.

Now, the only way people can buy stocks in the primary market is through lucky draws.

"Securities is a new thing in China. So long as you take good control of the opportunities, you will make success," said a teacher with the surname of Tao, who was once poor but now has earned about 1 million yuan through stock investment.

However, CSRC Chairman Zhou Xiaochuan did not seem totally optimistic when commenting on the huge gaps between the home and the established foreign markets.

"There is no foreign competition so far, so domestic securities intermediary institutions can still survive on a low management and operational level," Zhou said. But their capability after foreign institutions show up with China's expected entry to the World Trade Organization still remains in question.

"Domestic institutions must become really competitive so to meet the challenge brought by foreign counterparts," he said.

Zhou pointed out several disadvantages of the domestic stock market, the first of which is a lack of standardization.

"To be specific, we can still find many forbidden tradings that aim at manipulating the prices in the market," he said. "Protection of middle and small investors is not enough."

The product line of the market is not diversified enough either, he said.

"We don't have enough kinds of bonds, nor index futures, nor derivatives," Zhou said.

Although there are already 34 closed-end securities funds, there are still no open-ended funds, which allow investors to enter or withdraw any time they like, and mutual funds, which are very common on developed markets.

But the future is still bright, say analysts.

If the country joins the WTO, foreign securities companies and pension fund management companies would be allowed to set up joint ventures.

Despite fierce competition, these joint ventures would help improve the industry's general standard by forcing domestic companies to follow suit.

The State Council has already begun to approve joint-venture investment banks since 1995 on a trial basis which has found success in cultivating the market and training professional staff, Zhou said.

"We will adopt a more active attitude in this regard in the future," he said.

Another move to cultivate the markets is to develop open-ended funds, which has been approved by the State Council.

"We must be active or even exceed the regular speed in developing institutional investors like the open-ended funds," Zhou suggested.

The steady performance of the economy is also to provide a solid basis for sustained growth of the stock market, Qiu said.

"I think people should make middle or long-term investment in China's stock market instead of short-term speculation," said a stock analyst.

(Business Weekly 12/10/2000)