China's top capital market regulator said the country's capital is experiencing a significant transformation and historic change for the better, the Shanghai Securities News reported Monday.

Shang Fulin, chairman of the China Securities Regulatory Commission, said the ongoing reform to make State shares tradable on the stock market, efforts to boost institutional investors and improvements on the capital market legal framework are progressing smoothly.

Addressing a seminar on innovation and development in securities firms on Friday, Shang said the efforts to solve the deeply-rooted problems hindering China's capital market are necessary to push forward the reform and development of the market.

Huge demand for capital for the country's economic growth and readjustment and increase in corporate and individual investment capability represent broad space for the development of China's capital market, Shang said.

The Chinese government published a nine-point strategy to revive its capital market in February of 2004, stating that a sound and healthy capital market is essential for the country's economic reform and development.

Shang said the government has set up six task forces involving a number of ministries to implement the strategy to improve the environment for a healthy and strong capital market.

He said marked progress has been made, involving corporate governance improvements, restructuring of the country's troubled securities firms, and experiments to solve the issue of non-tradable State shares.

The country's major stock index, the Composite Stock Index of the Shanghai Stock Exchange, has gone up by nearly 20 percent since it hit an eight-year low on June 6, thanks to a package of measures by the government to revamp the sluggish stock market.

Major blue chips, such as Sinopec, China Unicom and banking shares, have gone up by up to 40 percent, contributing significantly to the rising indices.

Chinese stock markets, which were created 15 years ago, have fallen continuously since 2001. Poor corporate governance and non-tradable State share problems have been blamed for the sluggish market performance in the past few years.

China launched an experiment since early May to tackle the non-tradable State share problem so that those State shares will be eligible for floating on the markets after majority stock holders pay compensation of around 30 percent of the shares to minority stock holders.

Non-tradable state-owned and legal personal shares account for about two-thirds of the shares of the firms listed on the two markets.

A total 46 domestically-listed firms have been selected in two groups for the reform on a trial basis before the reform is launched completely.

Shang said the commission will publish a package of guidelines soon for the remaining listed firms to carry out the reform.

China has nearly 1,400 domestically listed firms.

To increase money supply for the market, the Chinese government has announced a series of measures to encourage investment in the capital market, boosting the development of institutional investors and lifting bans on direct investment in the market by major commercial banks and the State pension fund.

As part of the measures, the regulator increased the quota of qualified foreign institutional investors (QFII) by 6 billion US dollars, bringing the total quota for QFII to 10 billion US dollars, said Shang.

The State-owned banks, which dominate the country's banking sector, have also been given a green light to establish a fund with or without overseas partners to invest in the country's capital market.

China's top legislative body is also amending the country's law on securities and corporate law in a bid to crack down harder on crimes involving securities and give State-owned firms greater access to the capital market.

Shang said those achievements are just preliminary and the environment for the development of the capital market will be constantly improved while the foundation for the future development of the market will be consolidated.

Chinese firms rely on State-owned banks for financing, which experts say is bad for the country's financial security since unprofitable firms present risks to banking institutions.

They said China should make the capital market an attractive place for the corporate world to raise capital.

The Chinese stock markets, which were set up in early 1990s, have been far from being an economic barometer in the past 4 years.

Their major indices have been down by half since 2001, although the Chinese economy has been growing at an annual average rate of 9.4 percent for the past 27 years.

(Xinhua News Agency August 16, 2005)