Trading Returns to Former Financial Capital : New Stock Exchange Opens in Shanghai

A new stock exchange was opened Friday in Shanghai, the former financial capital of East Asia, permitting shares of Chinese enterprises to be bought and sold at market prices in China’s largest city for the first time in nearly four decades.

According to the official New China News Agency, a leading Shanghai commercial bank has started trading in shares of stock for two enterprises, the Shanghai Feile Acoustics Equipment Producing Co. and the Yanzhong Industrial Co.

It was apparently a bull market. The shares had a par value of 50 yuan ($13.50), but the government-run news service reported that the shares had appreciated. “Today the price of each Feile share was 55.6 yuan ($15) and that of Yanzhong was 54 yuan ($14.58),” the news account said.

It said the total volume traded Friday was about 80,000 yuan ($21,600).

The opening of the exchange was not publicly disclosed until late Friday night, after the end of the day’s trading. The announcement apparently marks the end of more than two years of debate about whether Shanghai should be permitted to have a stock market.

In the decades before the Communist takeover, in 1949, the city had a flourishing array of markets, exchanges and brokerage houses.

“For those who wish to play the market, Shanghai offers a wide variety of entertainment,” a guidebook called “All About Shanghai” said in 1934. “There is local and foreign speculation in commodities and stocks, gold bars and silver. . . . Owing to the differences in time, closing quotations on the New York Stock Exchange are available in Shanghai very early in the morning.”

The old Shanghai Stock Exchange, located on Hankou Road, has been for years depicted by Communist writers as a den of iniquity.

“All you could see was a jumble of flushed faces, bloodshot eyes and pallid hands, mixed, as was to be expected, with the smothering, stinking odor of sweat,” a Shanghai magazine commented last year in a historical reminiscence.

Old Exchange Closed in 1950

In 1950, a year after the Communist victory in China’s civil war, troops of the People’s Liberation Army surrounded Shanghai’s old stock exchange and arrested those who were working or trading inside. Under the leadership of Mao Tse-tung, any form of stock trading was denounced by the Communist regime as a form of capitalist exploitation.

Two years ago, the regime of Deng Xiaoping began to show increasing interest in opening capital markets. At first, China’s reform-minded leadership permitted only issuance of stock shares, not the creation of a stock market at which such shares could be traded.

Chinese enterprises were allowed to sell shares of stock, which functioned like bonds and paid fixed rates of interest. Owners of shares could resell them but only back to the enterprise or bank from which they were bought, and only at par value.

In early 1985, Shanghai’s Yanzhong Industrial Co. issued 100,000 shares of stock with a face value of 50 yuan, paying interest of 13% a year. Roughly 2,000 of the shares were bought by individuals, and the rest were sold to state or collective enterprises.

Since then, Shanghai’s leading newspapers have been actively lobbying Peking to approve a stock market for the city. Recently, China’s leading Marxist theoreticians have shown a willingness to go along with the idea.

“The only criterion is whether something promotes production and our commodity (market) economy,” Su Shaozhi, director of China’s Institute of Marxism, Leninism and Mao Tse-tung Thought, said in an interview last month. “In my personal opinion, issuing stock and exchanging stock may be one measure for doing this, so long as it does not lead to harmful speculation.”

The exchange that opened Friday is being run by Shanghai Investment & Trust Co., a subsidiary of Industrial & Commercial Bank of China.

According to the news agency account, “the market opened at 9 a.m., but some of the prospective buyers arrived as early as 6 a.m.”