China's stock market will overtake Japan's and become the largest in Asia by 2010, if the current momentum continues, a group of economist on international investment here said on Thursday.

"We are confident that the importance of stock market in China will increase, and more and more state-owned and private enterprises are likely to be listed in the coming years," said Charles Cheung, a senior market analyst from Salomon Smith Barney.

As long as the economic growth is sustainable and the reform process is kept alive, China may soon re-emerge as Asia's largest stock exchange, Cheung added.

Currently, the Shanghai and Shenzhen stock exchanges each has more than 500 listed companies, with a total market capitalization of 4.6 trillion yuan (US$559 billion). According to this measure, China's mainland is probably one of the largest stock markets in Asia, smaller only to Japan's and Hong Kong's, the economist said.

Most international observers attributed the recent renewed interest in China's stock markets to their short-term outstanding performance amid a vulnerable global market, to their long-term growth potential of the Chinese economy and to the accelerated pace of opening up to international investors.

"We believe 2001 will be a year of reforms and rallies for China's domestic A-share market, which is plagued by 'irregularities', and with continued reforms, it could become increasingly attractive to foreign investors," said Huang Yiping, also SSB's senior analyst.

Economists believed that three factors, including opening up the domestic financial sector to foreign investors, point to the immense potential of the Chinese stock markets. In two to three years, foreign investors and investment banks are expected to play an active role in the A-share market.
Despite the vulnerable international stock market in 2000, China's stock indices rose sharply with the A-share indices up 53.3 percent in Shanghai and 46.7 percent in Shenzhen.

More than 50 years ago, Shanghai was the world's third-largest stock exchange after New York and London. The once symbolic financial district boosted international and domestic banks and brokerages.

In 1990, Shanghai re-established a stock market, as part of Deng Xiaoping's efforts in reforming the Chinese economy, and in the following year, another stock exchange was set up in Shenzhen, the country's best-known special economic zone.

According to Deng Xiaoping, the stock exchanges were re-introduced in China only as an experiment. But today, stock exchange have become part of everyday economic life in China.

Pudong, the new home for the Shanghai stock exchanges, was once a deserted suburb but is now rapidly becoming a modern national financial center. There has been the talk that Shanghai may even overtake Hong Kong as the leading financial center in Asia Pacific region in the near future.

It has taken China only a little over 10 years to turn from a virtually autarkic economy to one of the world's top 10 trading partners and the second largest recipient of foreign direct investment.

During the past decade, the ratio of stock market's market capitalization to GDP rose from nearly zero in 1990 to 51 percent in 2000, helping improve allocation of financial resources in the economy, facilitating growth in key industries and increasing enterprise efficiency.

(Xinhua 01/18/01)