Chinese Traders Applaud Action By Beijing To Slow Stock Market

TO Shanghai stockbroker Zhu Guopin, the Chinese government's rescue package for the country's infant stock markets was a godsend.

After a 80 percent fall in share prices from a 1993 high stirred fears of a further market collapse, shares in Shanghai and Shenzhen surged in the last two weeks on news of government intervention to bolster investor confidence.

The China Securities Regulatory Commission announced that it was allowing foreign investment in so-called A-shares, previously reserved for Chinese, and suspending new A-share listings this year. This action is a step toward the merger of A-shares and B-shares, which are only available to foreigners, once the Chinese yuan becomes a fully convertible currency.

Beijing announced additional measures this week to blur the lines between the A- and B-shares, unveiling new legislation that would allow local investment in the B-share market. The proposed new law also would restrict foreign ownership of listed Chinese companies to 35 percent, preventing overseas investors from gaining control of large state-owned enterprises.

``This is what we were hoping the government would do for months,'' says Mr. Zhu, a young trader with Hainan Province Securities Company. ``Let's hope it lasts.''

But Chinese and Western analysts say this month's buying frenzy also underscores the continued volatility and potential for dizzying price swings in China's fledgling markets.

Just three years ago, China opened two stock markets that have drawn more than 5 million Chinese investing in only about 200 listed companies. Although initially millions flocked to buy what they thought was a ticket to instant riches, for the last year the markets have suffered under pressure from austerity moves designed to choke easy credit and cool the fast-paced economy.

Today, in the wake of the latest buying spree, the outlook remains cloudy. The tenacity of the stock surge prompted rumors that state enterprises under government control and acting on official orders were behind the share price jump.

Another theory was that investors from Hong Kong and Taiwan illegally entered the A-share market expecting that it will soon be open to foreigners, Chinese analysts say.

Long-term, analysts say, the market rebound lacks staying power. Without a bank of institutional investors, Chinese securities trading is done mainly by individuals and faces the prospect of wide swings. Determined to keep majority control of state enterprises, the Communist government allows less than one-third of these listed companies' shares to be traded, denying depth to the market, analysts say.

``The fundamentals are simply not there,'' says John Crossman of Jardine Fleming Securities in Shanghai. Nor have foreign investors overcome their uncertainty about China's economic future and uneasiness over the lack of liquidity in the Chinese markets, Western analysts say.

UNTIL the Chinese currency becomes fully convertible - the major obstacle to greater foreign involvement - overseas investors will prefer the H-shares, which are traded by foreigners on the Hong Kong Stock Exchange, or N-shares traded on the New York Stock Exchange. But neither H-shares nor N-shares have shown spectacular results. Although the Tsingtao Brewery Company, which issued the first H-shares in July 1993, has nearly doubled since its debut, four of the nine issues now trade below their offer prices.

Hoping to reinvigorate troubled state enterprises with foreign funds, the Chinese government has allowed nine mainland companies to list in Hong Kong and four in New York since 1992.

In January, the government unveiled a list of 22 companies slated for overseas listing, including two power companies and two airlines scheduled for the New York Stock Exchange. In recent months, the London Stock Exchange has made a bid for Chinese listings in the future.

Beijing has slated companies responsible for key infrastructure projects to be listed on the New York exchange. This offers these companies more prestige and higher price-earnings ratios, which helps them raise more money. When Luoyang Glass Co., the first of the new batch of 22 companies, hit the market in Hong Kong in July, its shares fell below the public-offering price.