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Securities market dances to its own tune

By Zhang Ran (China Daily)
Updated: 2008-09-10 09:23

The year 1986 is seen as the beginning of China's stock trading. On September 26 that year, on a small trading floor in Shanghai, two stocks were traded - Shanghai Feilo Acoustics Co Ltd and Shanghai Yanzhong Industrial Co Ltd. Some 1,540 shares worth 85,280 yuan changed hands that day.

The drama largely took place on the street outside the exchange. A local newspaper reported hundreds of eager punters, some of whom had stood in line from the day before, gathered in No 1806 Nanjing Xilu, where the first stock trading counter was located. "The crowd almost broke down the gate in front of the counter," according to the article.

From the start, China's securities market has been dancing to its own peculiar tune that has a different flavor and tempo from those of the markets in developed countries.

The lack of investment channels, with far more buyers than sellers, and the split equity ownership, with very limited share trading, had characterized and, said some, plagued the Chinese capital market before 2005. This caused the stock market to be extremely volatile and seen as "controlled" rather than an unshackled market.

It was not until 2005, when China launched a national share structure reform aimed at changing split equity ownership into a fully floated share structure, did the market begin to meet international standards.

Securities reform was no doubt a milestone in the history of the country's capital market. In the next two years, over 1,300 listed companies had converted their non-tradable State-owned shares into tradable ones.

By the end of 2007, 1,550 companies were listed on the Shanghai and Shenzhen stock exchanges, with a combined market value of 32.71 trillion yuan and accounting for 140 percent of the country's GDP, figures from the CSRC show.

Another major law introduced at the beginning of 2006 brought more sophistication into the capital markets once marked by embezzlement and lack of transparency.

The Company Law and Securities Law, enacted on Jan 1, 2006, were aimed at increasing corporate governance, creating more transparency and putting more power in the hands of shareholders. Seventy related rules and regulations have been published since the enactment of this law, smoothing out the market's rough edges from its early days.