The commission will release regulations on how the exchange will operate soon.

Foreign currencies used to trade B shares should be acquired through legal resources, the CSRC said.

A spokesman said that the widening range of B share investors is a response to changes in the capital movement of foreign currencies in China.

There are a growing number of foreign currency holders in the country and larger foreign exchange deposits at banks, said He Qiang, director of the Research Institute of Securities and Futures of the Central University of Finance and Economics in Beijing.

Individual deposits in foreign currencies at Chinese banks increased sharply in January, with the outstanding volume reaching US$75 billion, up 31.9 percent over a year ago, according to statistics of the People's Bank of China.

The CSRC spokesman said participation of domestic residents in B share trading will boost investing sentiment and accelerate the pace of opening-up of the bourses.

After 10 years of development, it is time to readjust the rules and function of the B share market, he said.

"The news will certainly attract more investors, both from home and abroad, to the B share market, which has long been haunted by small market scale and sluggish trade," said He Qiang.

It will also trigger the growth of domestic A shares, especially the A share companies who also have B shares listed.

He regarded the move as "an important step toward the merger of the A and B share market."

Expectation of the merger has triggered a sharp rally of the B share market in China last year.

"Investment value is high for B shares, which are still traded at a sharp discount with the A shares," He said.

Admission of domestic investors to the B share market will gradually narrow such price gaps.

But a final merger of the A and B share market still takes time and depends on the convertibility of renminbi under the capital account, he said.

Presently, renminbi is only convertible under the current account.

(China Daily 02/20/2001)