Institutional Investors Encouraged to Play Bigger Role in China

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Last updated at: (Beijing Time) Monday, June 10, 2002

Institutional Investors Encouraged to Play Bigger Role in China

China is set to encourage more institutional investors in coming years to stabilize its securities market and improve investment portfolios, say regulators.

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China is set to encourage more institutional investors in coming years to stabilize its securities market and improve investment portfolios, say regulators.

Stability, standardization, improved operations and quality are among the top priorities for the future development of China's securities market, according to Zhou Xiaochuan, chairman of industry watchdog, the China Securities Regulatory Commission (CSRS).

Zhou says CSRS thinks highly of the role foreign institutional investors play in developing countries. "They can help introduce funds and technologies to the developing countries, improve their management skills and enhance their competitiveness," he told the second international seminar on China's securities market held in Shanghai last week.

Institutional investors, with their professional teams, rational investment behavior and lower investment costs, would stabilize the securities market, improve investment portfolios and help listed firms in their corporate governance, said Zhou.

"The development of institutional investors will be significantto China's securities market, and now is a good time for far-sighted institutions to expand their operations," he said.

China's securities market has undergone rapid growth over the past decade, says Seiichi Kondo, deputy secretary-general of the Organization for Economic Co-operation and Development (OECD).

Statistics show the capital value of the Chinese mainland's stock market last year peaked at 5.4 trillion yuan (650 billion U.S. dollars), some 60 percent of its gross domestic product.

However, the market tends to fluctuate when its players are largely individual investors, says Seiichi Kondo. "It is therefore a priority for China to encourage more institutional investors."

These institutions would undoubtedly bring competition, but would help expand the capacity of China's security institutions in the long run through cooperation and merging, he said.

For years, China had studied the feasibility of attracting overseas investment through the securities market, by introducting core institutional investors, said Zhou.

But he noted this would need policy support as well as regulation and supervision by the CSRC and other administrators.

In the future, securities regulators would consider the market situation when they drew up rules, said Zhou. "In this way, we will hear the market's different voices. The principle is to create a stable market environment that is conducive to further development."

Meanwhile,the CSRC will further forster the bonds and financialfutures market, he added.

When asked why state-owned enterprises account for the largest portion of China's listed firms, Zhou said it was quite understandable as "SOEs contribute nearly 50 percent to the country's GDP".

"We have created a sound market environment for fair competition among businesses in the public and private sectors as well as foreign-funded enterprises," he said.

Of the 1,100 firms listed on Shanghai and Shenzhen stock exchanges, some 200 were privately owned and 70 were Sino-foreign joint ventures, and numbers were still rising, said Zhou.

Co-sponsored by the CSRC and OECD, the seminar was attended by over 80 senior officials, experts and academics from the OECD, World Bank, International Monetary Fund and countries including the United States, Australia, Japan and the Republic of Korea.

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