Most analysts regard it as a concrete measure to boost the hard currency market and the bourses of China as a whole.

"It implies that the reform pace of the securities authorities has not slowed down, even after the crackdown on irregularities," an analyst with a European securities house said.

It will also bring "behind the curtain" trading out in the open, the analyst said.

Chinese investors, who now hold US$75 billion in foreign currency deposits, have been longing for access to the B-share market, which was originally reserved for overseas investment and traded in hard currencies.

Some of them have entered the market by opening accounts in overseas banks and using passports, though their actions were still illegal before the announcement of China Securities Regulatory Commission (CSRC) on Monday, which finally allows domestic individual investors to open B-share accounts and use legally acquired foreign currencies to trade in stocks.

A CSRC spokesman explained that concerns over the outflow of foreign currency capital have been a major reason behind the move.

He said much of the foreign currency deposits had been lent overseas or spent on foreign bonds.

"Excessive outflow of capital is not desirable at the moment for China as a developing country," the spokesman said.

Allowing domestic foreign currency holders to trade B shares will bring some of the funds back to boost the development of the B-share companies.

On the other hand, experts have also called for substantial reforms like this to stimulate the sluggish B-share market, whose role as a channel to bring in foreign capital for domestic firms has been challenged by rapid expansion of overseas markets, such as the H shares and red-chip shares in Hong Kong.

"The widening range of B-share investors will boost sentiment in the market. It is also an important step towards the merger of the A- and B-share markets," said He Qiang, a professor with the Central University of Finance and Economics.

His view was echoed by many other analysts and officials.

"Opening the B-share market to domestic investors is also a positive move in the opening-up process of the bourses," said Ma Qingquan, secretary-general of the Securities Association of China.

He said changes in domestic A shares are also brewing and foreign investors would be allowed to trade A shares through setting up special trading accounts, a scheme similar to the qualified foreign institutional investors (QFII) in Taiwan.

The next step is to make the non-tradable corporate and state-held stocks tradable to further increase market liquidity , said Ma.

As for domestic investors, they are certainly happy to see more investment opportunities, much encouraged by the encouraging attitude of the government.

Since Chinese banks have cut the interest rate on foreign currency deposits several times since late last year, investing in the stock market may be seen as a better choice by investors.

Some people had already started to consult stock analysts through the Internet Tuesday about the trend of the B-share market and how they should react to the news.

"It seems to be a good opportunity, but I want to know more about the practical operation," a net surfer said.

CSRC will release such rules soon to further clarify the issue.

Meanwhile, it will also cooperate with other government departments to curb the inflow of black market money and punish arbitrage and illegal currency trading.

(China Daily 02/21/2001)