Beijing Investors Resist Quota

SHANGHAI -- With Chinese stocks bouncing crazily again, the only people more relieved than the brokers and investors are Beijing's state planners, whose clumsy quota system almost sank the markets.

The planners, who learned their trade in the Stalinist school of economics, believed they could expand the fledgling markets according to a rigid timetable.

Last year's plan called for 5 billion yuan ($574 million) of new scrip. This year's plan envisioned 5.5 billion yuan of new shares at face value.

Securities officials boasted that the Shanghai Stock Exchange would rival the Hong Kong market in size within five years, or even sooner.

State planners apparently forgot one thing: While they could bring companies to market by directive, they could not order investors to buy.

Neither could they persuade many of the formerly state-run enterprises to adapt to the ways of capitalism by publishing annual reports on time and giving honest figures to their investors.

Shanghai's A share index for domestically traded shares crashed by 80 percent from its high last year, and the Shenzhen market dived by 75 percent. New A share issues slowed to a trickle when it become clear the market was dead.

When the China Securities Regulatory Commission announced last Friday that all new issues and listings this year would be postponed, and that 1995 listings would be decided by the market, investors were ecstatic.

"It's another way of saying there won't be any quota system," said the Shanghai-based manager of a leading European investment bank. "State planners have been let off the hook."

On Monday, the Shanghai A index rocketed by 36.15 percent and the Shenzhen index by 33.96 percent, and although profit-taking dragged both indices down slightly Tuesday, brokers said confidence was still high.

"Any quota system in a stock market is likely to be unsuccessful, and with any luck it will disappear in China before too long," said Richard Graham, the China manager of London-based Barings.

Still, old habits die hard and foreign brokers are not convinced that state planners have given up.

Just as the regulatory commission chairman Liu Hongru was telling local investors that market forces would hold sway, he announced that B shares with a face value of $1 billion would be listed this year.

So far no B shares have been issued, and foreign brokers say there are at most a dozen companies ready to go to market. Few brokers believe there is any prospect of meeting Liu's target.

Foreign brokerages have been pleading with Chinese securities bureaucrats to allow them to select their own companies to bring to market.

Some are sending scouts around the country to find enterprises with good potential, hoping that by the time they are ready for market Beijing will have abandoned its listing-by-fiat policy.

Having stumbled at home, Beijing's planners are running into similar investor resistance in their efforts to list their latest pick of 22 state enterprises overseas.

One of the 22, Shanghai Hai Xing Shipping, postponed its issue in Hong Kong after Beijing authorities refused to accept a reduced offer price suggested by its foreign-investment advisers.