A spate of speculative investment has delayed chances that the transfer of non-tradable state shares into the sales stream will jump-start the country's flagging capital market.

But some analysts do see hope on the horizon in the form of the government's effort to attract more investment funds to the troubled bourses.

"The pace is sure to rise," said Li Zhi, a Hualin Securities Co analyst. "What's more, the nation may allow more foreign participation in the shakeups of its brokerage houses."

Help can't come anytime too soon.

In May, China's central government restarted a twice-scrapped program to ultimately convert as much as US$250 billion in mostly state-held nontradable equity into free-floating stock.

Under the arrangement, majority shareholders give minority stock owners cash, shares and/or warrants to compensate them for the increase in tradable shares.

The market responded positively at first, but the Shanghai Composite Index fell nearly 11 percent since its September 19 peak when a selling spree began.

"Some investors have been adopting a 'get-and-sell' strategy that caused the volatility," said Zhang Li, a Huatai Securities Co analyst. "They piled into companies ready to issue bonus stock and unloaded their chips immediately after the lock-up periods to reap quick profits."

China has been taking other measures as well to restore ailing stock markets, which hit eight-year lows early this year; among them, consolidating brokers and encouraging the inflow of new capital.

But the expected upswing has yet to materialize. Investors are concerned about the effects of China's ongoing push to rein in redundant capacity and its other macroeconomic controls, which in part caused the average profit of listed companies to edge up less than 4 percent in the third quarter.

"The government is still cautious about carrying out reforms in the capital market, such as granting more investment rights to overseas players," said Li Zhi, a Hualin Securities Co analyst. "That's part of the reason why some people are taking a wait-and-see attitude for now."

Even so, some investors appear to be getting set for bigger things.

Fortis Bank, Belgium's largest lender, received approval on Tuesday to invest an extra US$300 million in yuan-denominated stocks and bonds, boosting its quota to US$400 million.

But the move has been only the second step, following Hang Seng Bank's US$50 million investment-cap boost in September, since the country said in July that it will increase combined overseas investment quotas from US$4 billion to US$10 billion.

(Shanghai Daily November 14, 2005)