Shanghai opens its doors to foreigners: The booming stock exchange is preparing to ease broking restrictions and allow non-Chinese firms to list

The rapidly expanding Shanghai Securities Exchange plans to increase its attraction to foreign dealing firms by offering a new form of membership which will avoid the need to operate jointly with local firms that now take a slice of commissions.

Officials are also hoping to offer secondary listings to foreign firms by the end of the year if they can get approval from Peking. They are discussing a listing with Hong Kong's Bank of East Asia.

Li Qian, who is in charge of the project to introduce a new special category of membership to foreign broking firms, said it was aimed at encouraging them to invest and compete more strongly, raising the standards of the market as a whole.

'Local brokers find it very difficult to compete with foreigners in the secondary market because you have so many mutual funds and pension funds,' she said.

Domestic brokers take an automatic 20 per cent share of commissions, but would be put under new competitive pressure if foreign firms operated independently. Shanghai's local brokers do not agree with the new system - 'but you have to take a long-term view for long-term development of the market,' Ms Li said.

'We really need to improve the market and foreign firms really care about the 20 per cent commission,' she said, because they obtained the orders themselves and paid money to local brokers for doing nothing.

There are 21 foreign brokers on the market among 501 Chinese members. Total membership of the exchange, one of two in China, has soared from 25 in 1990. The other exchange is Shenzhen.

Andrew Smith, chief executive of Standard Chartered Merchant Bank Asia - the first foreign firm to get a seat in Shanghai - said: 'Shanghai reckons it will be a bigger capital market than Hong Kong by 2010 - which is perfectly possible.' But he was not so sure it would achieve its target of being the biggest in Asia by 2030.

The market has expanded so fast it has seven trading floors in Shanghai, with the main one based in the converted ballroom of the Pu Jian Hotel, formerly the Astor House Hotel, which was built in 1860.

In two years, the exchange will be moving to a single floor in a new financial centre in Pudong, a western suburb of Shanghai, which physically will be the biggest in Asia, with 3,000 trading seats, Ms Li said.

The market is logging 470,000 transactions a day and averaging 2bn renminbi turnover a day, with a record of 5.2bn renminbi ( pounds 500m) last Monday. It trades 177 stocks, with four new ones added on Friday. Market capitalisation is more than 300m renminbi - about pounds 26bn, although this compares with Hong Kong's pounds 250bn. Last week, Shanghai share prices were falling.

Shanghai is also planning to set up a nationwide centre to manage foreign exchange dealings later this year, to replace 100 'swaps centres' around the country. But it is likely to be the next century before the currency approaches convertibility. Zhu Xuao Hua, the government's head of foreign exchange control, recently told the Shanhgai Securities Exchange it would take five years to make the renminbi convertible. Convertibility is also a precondition for merging the market in 'A' shares in Chinese companies - from which foreigners are excluded - and the 'B' share market, in which foreigners can invest.

Thousands of people lined up yesterday at banks across Peking for a chance to buy stock in four local state-run companies, the first such public offering by the city.

Police and security guards, some armed with electric batons, were mobilised to prevent a recurrence of rioting that broke out in the southern boom town of Shenzhen two years ago over a similar public issuing of stock.

Lines began to form before dawn at some of the banks and other financial institutions authorised to accept applications to buy stocks. By mid-morning, nearly 300 people were waiting in line outside two banks in the main central shopping districts of Xidan and Wangfujin.

China overheats, page 24

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