China's securities regulators will take concrete steps to upgrade the structure of the securities market and pace up product innovation in the sector this year.

Analysts expect that more reforms will be made on the stock listing and new share issuing system, the risk prevention mechanism and the overall market supervision scheme, said Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC).

To ensure the healthy and solid growth of the capital market, it is essential to further improve market fundamentals and adjust the regulatory system according to changes in the market, said Shang at an annual work conference that ended Thursday in Beijing.

After years of consolidation, China's stock market is gradually moving out of the bearish stage and market confidence is recovering. Under such circumstances, the CSRC is innovating and maintaining the stability of the bourses a priority.

"We will work hard to protect investor interest, upgrade market efficiency comprehensively and build a competitive investment and financing environment," said Shang.

"Innovation is the driving force for the reforms," he said.

With the adoption of more market-driven rules and regulations, more investment products are expected to come onto the market and more qualified listed firms will emerge.

The market will also open wider to foreign investors, said Shang.

He also pledged to solve the historic problems in the bourses in an active but prudent manner.

The State Council released a document on the development of the capital market two weeks ago, which framed its development strategy encouraging investors to invest in the bourses and promising preferential tax treatments.

It also promised a sound and active solution to the liquidity problem brought by the existence of a great volume of non-tradable State and legal person shares.

Shang said the focus of the CSRC's work this year is to implement the State Council's new policies.

By the end of 2003, the number of listed companies in Shanghai and Shenzhen reached 1,287, with a total market capitalization of 4.2 trillion yuan (US$507.2 billion), according to CSRC statistics.

But direct financing is still underdeveloped in China. And as the listed companies are mostly State-controlled companies, many private firms are thirsty for raising funds.

To better finance small- and medium-sized enterprises (SMEs), China is planning to set up the second board market in Shenzhen.

Shang said the second board would be build in stages.

A special counter would be established first on the main board of the Shenzhen Stock Exchange to bring together SMEs and high-tech firms.

Building a separate second board market would take more time, insiders said.

To prepare for this plan, the Shenzhen Stock Exchange, which suspended new share offers more than two years ago, started a trial operation of the trading system for new share offers this week.

The move is regarded as a sign for an imminent resumption of new share offerings on the exchange.

"We are making final preparations for the restart of share offers, which should be very close," said an exchange official, though the exact time-frame is still not set.

But he said that the new share issues should be dominated by SMEs, and relative listing regulations and threshold would be gradually amended.

"Many SMEs have already received CSRC approval for public offering and are lining up for the listing," said an official with the investment banking department of CITIC Securities in Beijing.

The traffic jam on the listing road is expected to be greatly relieved by the resumption of new share offerings in Shenzhen, she said.

(China Daily February 13, 2004)