China Appears Set to Expand Stock Markets : Economy: Despite opposition from hard-liners, large issues of new stocks reportedly will be listed on the two existing exchanges.

BEIJING — Despite resistance from hard-line ideologues within its top leadership, China appears to be planning a major expansion of its fledgling stock markets this year.

Large issues of new stocks, both regular “A” shares for Chinese investors and special “B” shares for foreign investors, will be listed on the two existing exchanges in Shanghai and Shenzhen, the official New China News Agency reported last week.

Government hard-liners have long opposed any large-scale expansion of stock markets, arguing that they undermine the foundations of socialism, but senior leader Deng Xiaoping has consistently stressed that economic development should be placed above all other considerations.

Current steps toward greater use of shareholding to raise investment capital come after Deng, 87, made statements reaffirming his support for stock markets while visiting Shenzhen, a “special economic zone” near Hong Kong, in January.

The official China Daily paraphrased Deng as having declared that “the successful trial operation of the two stock markets in Shenzhen and Shanghai” shows that “some capitalist business practices may be borrowed and put to use in a socialist economy.”

The New China News Agency reflected the continued sensitivity of the issue by attributing the information in its report only to anonymous “reliable sources” and “a senior official with the People’s Bank of China.”

The report still carries the weight of an officially approved announcement because the news agency is directly under the control of the State Council, China’s cabinet.

Central government approval has been given for issuance of $400 million worth of “B” shares, which are denominated in Chinese yuan but must be bought and sold in foreign currency at the official exchange rate, the news agency said. The first such shares were issued in December with the overseas sale of $74 million worth of shares in Shanghai Vacuum Electron Device Co., a predominantly state-owned manufacturer of televisions.

The agency said that last year, Chinese firms issued 2.7 billion yuan ($500 million) worth of new shares of regular “A” stocks for listing on the two exchanges. The amount issued this year will be larger, it said.

Total capitalization on the Shanghai market, which lists stocks in only nine companies, is currently about 3.4 billion yuan, or $625 million. About 70% of the stock is held by Chinese institutional investors, but the market also has over 100,000 registered individual investors, according to official statistics.

The Shenzhen market, which handles stocks in six companies, has a capitalization of about 8.3 billion yuan, or $1.5 billion.

A key issue that apparently remains unresolved is just how rapidly the shareholding system will be allowed to expand.

Wei Wenyuan, general manager of the Shanghai Stock Exchange, predicted in a recent article published in the official Beijing Review that the quantity of new stocks to be issued this year “will be several times the existing amount.”

Recent discussions of shareholding in the Chinese media indicate that consideration is being given to the issuance of shares in both state-run enterprises and Sino-foreign joint ventures.

The report did not say what companies would make the stock issues. But a New China News Agency report last week said that 70.5 million yuan ($13 million) worth of shares were being issued in seven “major promising enterprises” that would soon be listed on the Shanghai exchange.

The report named three of these companies: Shanghai Special Shaped Steel-Tubing Plant, Shanghai Jiafeng Cotton Mill and Shanghai United Textile Holding Co. Ltd.

China will eventually open a third stock market somewhere in northern China, but “the location of the exchange is still an issue,” the news agency said. A “blueprint” for this new exchange is expected to be worked out by the end of the year, it added.

Until now, the Shanghai exchange has listed stocks only from Shanghai-area firms, and the Shenzhen exchange has listed stocks only for Shenzhen companies. This year, however, these exchanges will begin to list stocks issued by enterprises in other parts of China, the report said.

Plans drawn up by the People’s Bank of China, which supervises the country’s securities markets, call for the two existing exchanges and the new one planned for northern China to eventually be linked to form a national “stock trading network,” the report said.