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. Last Updated: 07/27/2016

China's Stock Markets Set for Growth

SHANGHAI -- A Japanese economist last week forecast a dramatic expansion of China's securities market but brokers said a listing by a Chinese firm on the Tokyo stock market was unlikely in the short term.


Shozo Hashimoto, head of the Nomura Research Institute, told a Shanghai seminar that at the end of 1995 the capitalization of China's two stock markets was $41.8 billion, just seven percent of GNP, against an Asian average of 80 percent.


If China posted economic growth of 12 percent a year and its capitalisation reached the Asian average, that figure would by the year 2020 reach $9.6 trillion, 2.7 times that of the current capitalisation of the Tokyo Stock Exchange and 1.7 times that of the New York stock market, he said.


While the pace of economic growth might vary and the proportion might not reach the Asian level, it was still realistic to expect that China's securities markets could attain the level of Tokyo's over the next 25 years, he said.


Hashimoto was addressing a seminar on management of securities markets jointly hosted by the Shanghai and Tokyo stock markets and the Nomura Research Institute.


Addressing how to raise the capitalization ratio in China, he said that what mattered was an increase in the value and profitability of companies and not merely output.


He said adequate rules and regulations and company disclosure were essential to market expansion.


"If the stock market becomes a tool for a small number of speculators and prices are not properly formed, then we can say that the market is destroying itself," he said.


Brokers said Tokyo had lagged behind other overseas markets in attracting Chinese stocks, which are listed in Hong Kong, New York and Singapore. None is listed in Tokyo.


The China Securities Regulatory Commission, or CSRC, has signed agreements with Britain and Australia, opening the door for listings by Chinese firms in those countries, but not with Japan, brokers said.


But they said they expected the CSRC to sign such an agreement with Japanese authorities during 1996.


Motoharu Nagashima, assistant director of Japan sales for HG Asia in Hong Kong, said the two main reasons why no Chinese firms had listed in Tokyo were high listing costs and regulations requiring a certain level of capitalisation.


"Many Japanese investors are very local and do not know about foreign shares," he said. Major investors buy foreign shares but not Chinese ones because they are seen as too risky, he said.


A broker with a Western brokerage said that, in the case of a Chinese stock, the Tokyo Stock Exchange was concerned about the issue of investor protection and did not want to list unknown companies.


Listing costs on the Tokyo Stock Exchange are high, with documents to be written in Japanese by Japanese lawyers and auditors, he said.