China to Set Up Stock Exchanges

China plans to set up stock exchanges in a few of its major industrial cities, thus becoming the first Communist country with a Western-style exchange.

“A few major industrial cities will be chosen as pilots for setting up stock exchanges in the near future,” the official New China News Agency paraphrased a senior official of the People’s Bank of China as saying.

“This is a major step for a Communist country,” a foreign banker said. “It is quite revolutionary.”

Chinese economists have repeatedly urged the government to establish a stock market, stressing the economic merits of the capitalist institution. Communist Hungary has a bond market, but analysts said China apparently envisages a market that would play a much wider role in the economy.

“I don’t see any reason why it (a stock exchange) shouldn’t work,” the People’s Bank of China official said. “It is a very good way to get people in the cities to support the manufacturers. It would get the average person involved in the well-being of the company.”

Foreign bankers say the southern city of Canton, not far from Asia’s most important money market in Hong Kong, seems the most likely choice for China’s first stock market.

China already has authorized the sale of securities as an experiment in 13 provinces and major cities and is establishing regional centers to handle the sale of stocks and bonds. A secondary securities market has already appeared in the coastal city of Shanghai, where the nation’s first dividend checks were issued to 18,000 stockholders earlier this year.

Most Chinese enterprises sell their securities to their employees or to local units with which they are familiar.

As part of its financial reforms, the government freed Chinese enterprises to issue and sell stocks and bonds two years ago for the first time in China’s post-revolutionary history. The policy was designed to encourage firms to use stock sales to raise capital, thereby reducing the financial drain on state coffers and encouraging people to save.

In a related development, officials said private enterprise is growing rapidly in rural China, providing jobs for millions of unemployed peasants no longer needed in agriculture. The number of rural collective and private enterprises operating independently of the state more than doubled last year to 12.2 million, said Zhang Yi, deputy director of the Bureau of Township Enterprise Management.

Taiwan’s recent economic growth appears to be running counter to the overall slowdown in the growth of Pacific Rim countries, according to a survey by the Conference Board.

The New York research firm’s international economic scoreboard showed that Taiwan’s leading index, which projects the future direction of its economy, is climbing at an annual rate of 13%, putting its growth rate ahead of all other countries in the region and reversing its sluggish pace of only a year ago.

In contrast, the leading indexes in Japan and Australia, which had been growing briskly in the spring of 1985, are now posting a 4% decline. The board said the leading index for the Pacific region--made up of Japan, Australia and Taiwan--was showing a 4% decline.

“Economic growth patterns in the industrial world are continuing to show great diversity,” observed Geoffrey Moore, director of the Center for International Business Cycle Research at Columbia University, which compiles the data.

“Latest data suggests that growth will be slow or non-existent in Japan, Australia, West Germany and the United Kingdom. But moderately faster growth is ahead for the U.S., Canada, France and Italy. And Taiwan is expected to continue registering rapid growth.”

The scoreboard tracks both the leading indexes, which project the future of the economy, and the economic performance index, which tracks current economic conditions. The indexes are compiled monthly for the board by the Center for International Business Cycle Research.