China introduced two regulations aimed to bolster its sluggish capital market earlier this week by making it easier for securities firms to raise money from the market, while also, in a surprise move, ordering the takeover of a troubled securities firm.

The People's Bank of China, the country's central bank, Monday issued the Regulation on Short-Term Financing by Securities Firms in cooperation with the country's stock and banking regulators.

The bank described the new regulation as a move designed to expand the channels for securities firms to find financing, and as part of its effort to implement the central government's strategy of pushing forward the opening up and reform of China's young but bearish capital markets.

On the same day, China Securities Regulatory Commission (CSRC),the country's top regulator of securities markets, made public its revised Interim Rules on the Management of Bonds of Securities Companies.

The commission said the revised regulation drastically lowered the threshold for securities firms to issue bonds to raise capital.

It also handed down a decision on Monday on scandal-plagued Minfa Securities Co., commissioning China Orient Asset Management Corp. to operate the troubled firm -- a move surprised the market.

According to the decision posted on its website, the commission said it will seek civil and criminal penalties for related managers of the firm responsible for what it called "serious business irregularities."

With a registered capital of 800 million yuan (nearly US$100 million), the company suffered huge operating losses.

The new regulations and the trusteeship decision were welcomed by securities market dealers and analysts.

Ding Ying, chief investment officer of CITIC Funds Management Co., said the moves indicate the government will continue to introduce various policies of market reform, balancing the supply of capital for the securities market and stocks.

An expert with Haitong Securities Co., one of the leading securities firms on the Chinese mainland, said the moves indicate the regulators support and encourage the development of quality securities firms that follow rules.

That, in turn, will facilitate the country's securities firms to progress in a regulated, stable, efficient and orderly manner, which will in turn help the development of the country's capital market, said the expert, who declined to be named.

The national Chinese-language newspaper Economic Daily has predicted that 2004 will be a year of elimination of Chinese securities firms with poor performance.

Chinese securities firms have suffered heavy financial losses due to falling stock prices since 2000, estimated at 220 billion yuan (US$26.8 billion) by the Economic Information Daily.

A group of medium-sized and small securities firms have been closed down or de-registered due to heavy losses and irregularities during the past several years. But larger firms are not immune to heavy losses and irregularities.

Earlier this year, CSRC and Shenzhen Municipal Government took over China Southern Securities Co., which had been charged with "serious business irregularities."  The company was one of the first three securities firms on the Chinese mainland.

More than half of the country's 40 securities firms reported financial losses.         

The remarks by Chinese Vice-Premier Huang Ju may offer clues to the understanding of the latest moves taken by the regulators.

The vice-premier told members of CSRC International Advisory Committee that China's capital markets have been growing in parallel with the country's reform and opening drive. The country's capital markets, he said, are still young and facing a number of problems and contradictions during the process of development.

He ordered CSRC and other relevant government departments to strengthen supervision over capital markets, earnestly safeguard the interests of investors so as to push forward the stable and healthy development of capital markets.

(Xinhua News Agency October 22, 2004)