China halts trade on institutional markets

Business Asia, Oct 25, 1999

China has halted dealings on two markets set up to trade institutional shares and is looking for ways to wind up their business, securities industry officials say.

Beijing halted trading on the so-called STAQ and NET systems in September, ostensibly for "testing", but few expected the two markets to reopen.

The two computer-based markets allow institutions to trade China's so-called "legal person" shares.

This special class of stock was designed to let financially strapped state firms raise cash by selling shares to other government entities without surrendering state control.

"They just stopped trading last month," said one securities industry official. "I don't think they will restart trading because officially they will be closed."

China aimed to close the two markets, which have languished with low turnover, to focus on development of the Shanghai and Shenzhen stock exchanges, industry officials said.

"These markets are no longer needed," said an analyst at China Securities, a major local brokerage house. "They are flawed."

STAQ was set up by the Stock Exchange Executive Council, an advisory and research body, while NET was created by the People's Bank of China, the central bank, which once had a key supervisory role over the share markets.

STAQ trades legal person shares of seven companies while NET has six.

The expected closure leaves securities regulators with the complicated task of what to do with the institutional shares of the companies traded on the two markets.

One proposal called for the establishment of a special board for the shares previously listed on STAQ or NET, which would be gradually transferred to the main boards of Shanghai or Shenzhen a Shanghai exchange official said.

"This problem will take a pretty long time to work out," the official said.

"It's quite complicated and I don't think regulators have the time and energy to solve this now."

Among those on the STAQ market are Hengtung, an electronics firm based in the southern city of Zhuhai, and Changbai, a computer company headquartered in Shenyang in north-east China.

One of the STAQ-listed companies had been Hainan Airlines, which has B shares trading on the Shanghai exchange and has launched an offer of A shares for domestic investors.

The company's legal person shares were withdrawn from the STAQ market in June, however.

Some of the shares were sold to Hainan Qixing Industrial Co, a conglomerate with interests in real estate, securities and aviation.