China has unveiled a three-stage plan to gradually resume domestic stock sales to bolster its capital market with more good-quality listings while avoiding a glut of unwanted shares.

Under the arrangement, listed companies will first be permitted to place equities with existing stock holders pending lock-up periods or issue stock warrants to investors, the China Securities Regulatory Commission said in a Website statement late Sunday.

On the second stage, public firms, which finished their non-tradable share reforms more than half a year ago, can float additional stocks to public investors on domestic markets, the statement said.

Given the process goes smoothly, regulators will finally resume initial public offerings of "good quality" companies "at a proper time," according to the statement.

Chinese authorities halted all sales of stocks and bonds last May as the country works to convert US$250 billion in non-tradable state-owned shares into free-floating entities at all mainland listed firms.

So far, companies representing about 60 percent of combined market value in Shanghai and Shenzhen have completed their stock overhauls.

"As the reform has been proceeding smoothly, it's now time to consider restarting share sales," the regulator said in the statement, But "when any issuance will go must depend on market conditions and we should prevent a stock flood from casting a psychologically negative impact on investors."

China's stock markets, plunging to eight-year lows last year, have picked up in the past several months as the stock-market watchdog prompted more institutional participation, stepped up oversight of corporate management and paced up development of derivatives.

Under revised listing guidelines also issued Sunday, regulators prohibited public companies from selling additional shares at a discount to market prices, a move previously adopted to woo investors.

Selling stocks at prices higher than market levels will make it hard for poorly-performing companies to raise funds and protect minority stock holders' interest, analysts said.

Regulators also promised to make pricing mechanism more market-oriented and urged listed firms to boost dividend payouts to shareholders, according to the guidelines.

Companies, which have gained nod from the regulator to issue stocks, can decide when to proceed themselves within the following six months, instead of being assigned an issuance date by the watchdog, the guideline said.

(Shanghai Daily April 17, 2006)